The Housing Bubble

The California realtors report on Sptember sales. “Home sales decreased 38.9 percent in September in California compared with the same period a year ago, while the median price of an existing home fell 4.7 percent, C.A.R. reported today. ‘While it is typical for the median price to dip seasonally as we move from August to September, this decline, which was both the largest month-to-month percentage decline on record and the first year-to-year decline in more than 10 years, was mainly the result of the credit or liquidity crunch, which also drove sales below the 300,000 mark,’ said C.A.R. President Colleen Badagliacco.”

“Statewide home resale activity decreased 38.9 percent from the 444,780 sales pace recorded in September 2006. The median price of an existing, single-family detached home in California during September 2007 was $530,830, a 4.7 percent decrease over the revised $557,150 median for September 2006, C.A.R. reported. The September 2007 median price fell 9.9 percent compared with August’s $588,970 median price.”

“‘The impact of the credit crunch spread throughout all tiers of the market in September,’ said C.A.R. Chief Economist Leslie Appleton-Young. ‘While the entry-level portion of the market has been adversely affected by the subprime situation and tighter underwriting standards for much of this year, the high end of the market also saw a decline in sales, as even well-qualified buyers were affected by the lack of funds available for jumbo loans.’”

“C.A.R.’s Unsold Inventory Index for existing, single-family detached homes in September 2007 was 16.6 months, compared with 6.4 months (revised) for the same period a year ago.”

“In a separate report covering more localized statistics generated by C.A.R. and DataQuick, 17.3 percent, or 50 out of 289 cities and communities, showed an increase in their respective median home prices from a year ago.”

The Desert Sun. “Shifting market conditions in the Coachella Valley’s real estate scene mean agents, brokers and sellers must adjust how they do business.”

“‘A year and a half ago, we were doing deals in our sleep,’ analyst Patrick Veling told hundreds of industry watchers Tuesday. ‘We had to show up to collect the commission check only. Those days have now passed. They were a gift from God, let’s move on.’”

“Home sales are down 54 percent in Desert Hot Springs and Indio over last year and are down 36 percent in Cathedral City.”

“Many valley cities have home and condominium inventories that would take one to two years to exhaust at the market’s current pace. Desert Hot Springs has a 51-month supply of condominiums in the $200,000 to $300,000 range and a 40-month supply of homes in the $500,000 to $600,000 range.”

“But the market level-off and cool-down is a good thing, Veling said.”

“‘Further rising prices would have collapsed our market under its own weight,’ he said. ‘Increasing inventories has an upside: It means more choices for buyers who were frustrated by the lack of choices as early as a year, year-and-a-half ago.’”

“Sellers must be willing to abandon a ‘2005 mentality’ and change their expectations in light of the current market, Veling said.”

“Sellers need to hear that ‘unless you are prepared to allow me to aggressively position your home for successful sale, I will not take your listing,’ he said, drawing applause from the audience.”

The Associated Press. “Centex Corp. cut prices on many of its homes and shifted to offering more traditional mortgages this summer, executives say. In some places, prices were slashed 20 percent, executives said.”

“Write-downs of $983 million reflect the lower value of Centex’s unsold homes, land and other assets in a sinking housing market. Chief Financial Officer Cathy Smith said Wednesday that the write-downs were concentrated in California, Arizona, Nevada and Florida, where price cuts were most common and where foreclosure rates are higher.”

The Street.com. “Standard Pacific might be worth more dead than alive. That’s why some are predicting the homebuilder’s lenders will eventually force the company to file for bankruptcy to restructure its hefty debt load.”

“Standard Pacific’s issues may be the worst of any among the major public building companies. It has heavy exposure to the dismal California housing market, a hefty debt load and hidden dangers lying in its joint ventures.”

“Last quarter, Standard Pacific paid $25 million to two of its Southern California joint ventures to help fund a margin call from a lender. The company also spent $81.6 million to pay off the debt in conjunction with buying out its partner’s interest in a Northern California joint venture.”

“JPMorgan analyst Michael Rehaut said ‘the company is in a solid position to pay down its revolver and stave off a negative liquidity event.’ However, Rehaut’s thesis rests on a risky assumption: that Standard Pacific can manage to work down its housing inventories and sell homes fast enough to pay down debt.”

“The company had about $1 billion of homes under construction at the end of the second quarter.”

“‘It’s a matter of time. If Standard Pacific continues on this path, they won’t be too far way,’ says CreditSight analysts Frank Lee. ‘The JV’s continue to bleed, and they have to support them.’”

“Countrywide Financial Corp., the nation’s largest mortgage lender, said Tuesday it will begin calling borrowers to offer refinancing or modifications on $16 billion in loans with interest rates set to adjust by the end of 2008.”

“‘People are talking about it, saying it might be necessary, but there’s not a lot of it going on,’ said Guy Cecala, publisher of Inside Mortgage Finance.”

“Despite industry efforts, relief remains out of reach for many borrowers such as Carlos Ortiz, who says he’s on the verge of losing the four-bedroom home he bought for $580,000 in suburban Rancho Cucamonga, east of Los Angeles.’

“Like other buyers at the height of the housing boom, he got a loan that kept his monthly payments low for two years and counted on being able to refinance before the rate adjusted sharply higher.”

“When he didn’t qualify for a new loan, he tried to get his mortgage servicer to restructure his existing one. ‘I told them I cannot afford it, you have to help me to refinance or modify my loan,’ Ortiz said. ‘They don’t want to work with me.’”

“Kevin Stein, associate director of the San Francisco-based California Reinvestment Coalition advocacy group, said the best way for lenders to help distressed borrowers is to lower long-term interest rates before they adjust higher. Rate cuts for a year or two are little help, he said.”

“‘That’s akin to getting another bad loan that’s going to adjust in a year and be unaffordable,’ he said.”

The San Francisco Chronicle. “Nearly 4,800 subprime loans made to Bay Area borrowers in 2006 are likely to fall into foreclosure in the next couple of years, costing homeowners, cities and lenders as much as $1.5 billion, according to an advocacy group for lower-income families.”

“Liz Wolff, ACORN research director, pointed out that the interest rates on many subprime loans taken out in 2005 and 2006 will not reset until next year or 2009 - and almost certainly soar higher. ‘We’re just at the beginning of this mess,’ Wolff said.”

“Using lender and federal home loan data and nonprofit research on foreclosures, Wolff found 617 homes in San Francisco and San Mateo counties with high-cost loans made in 2006 that are in danger of repossession, amounting to $210 million in costs to the homeowners, lenders and investors and local government and in lower home values for neighbors.”

“In Santa Clara County, the group said 1,124 high-cost loans are likely to go into foreclosure, amounting to $370 million; and in Alameda and Contra Counties, 3,021 loans are at risk, amounting to about $875 million.”

“Giselle Quezada hopes her home in San Francisco’s Ocean View neighborhood doesn’t become one of those.”

“She recently refinanced the home she has owned for 28 years in order to pay down debt and help her son and daughter buy a home together. Although the loan was sold to her as fixed, Quezada said it quickly became an adjustable rate, forcing her payments from $600 a month to $1,900 a month. Now, the telephone technician lives check to check.’

The Contra Costa Times. “The mortgage meltdown has claimed the jobs of at least 300 people in the East Bay this month, an indication that the housing recession has yet to run its course. Diablo Funding Group, BNC Mortgage LLC and Option One Mortgage Corp. are cutting a combined 325 jobs in the East Bay.”

“Diablo Funding has 22 branch offices and operates in four states, according to its Web site. ‘We are closing down,’ said Anthony Battagello, Diablo Funding’s CEO. ‘It’s because of the credit crisis.’”

“The housing-related job cuts during October are significant and affect multiple East Bay communities. Diablo Funding said it would eliminate 100 jobs because of its shutdown. BNC Mortgage is cutting 175 jobs in Concord. Option One Mortgage has jettisoned 50 jobs in Pleasanton.”

“The demise of Diablo Funding stunned some local realty executives. Founded in 1992, Diablo Funding was one of Northern California’s biggest independent mortgage companies.”

“‘That was a surprise to me,’ said Don Morton, a real estate consultant. ‘That was a little scary. Diablo Funding has been around for a long time, and they seemed to be pretty successful.’”

“Battagello said he believes the current slump is unprecedented. ‘By far, this is the worst downturn I’ve seen,’ Battagello said. ‘It is very sad what has happened to this industry. I don’t see starting any mortgage companies in the near future.’”

“The shutdown of Diablo’s operations also was described as unexpected by some key executives at the firm.”

“‘This caught me by surprise,’ said John Hollinger, an executive VP who joined the Diablo team in 1994. ‘I was told that I don’t have a job effective immediately. I was told I’m a free agent.’”

The Houston Chronicle reports from Texas. “Josh Lowrey is thinking of selling his three-story townhouse in the Sixth Ward next year so he can buy a house with a yard. The 30-year-old Dallas native said he’s noticed that the housing market has started to slow, and developers are putting up units all around him. ‘Do I sell now when I’m not quite ready?’ he said, ‘or when I’m ready and there’s an abundance of homes on the market?’”

“Some builders say fewer shoppers are walking into their sales centers. And those who do are looking for bargains. ‘People seem to think it’s a huge buyers’ market,’ said Marty Weiner, president of Parkstone Estate Homes.”

“Some in the industry attribute the slowdown to a confused public. Developer Larry Davis, who builds inner-city townhomes clad in metal skins, said his company’s sales are off about 10 percent. But he chalks it up to buyer jitters fueled by a barrage of national news about the housing slump.”

“‘It’s totally psychological,’ said Davis, of Urban Lofts Townhomes. ‘It’s hard to get a grasp on what’s real and what’s not.’”

The American Statesman from Texas. “Reflecting the national housing slump, sales of existing homes in Central Texas fell 22 percent in September, and the number of homes on the market hit a four-year high. It was the fourth month in a row that sales have fallen from a year ago, and the first September drop in five years, according to the Austin Board of Realtors.”

“It has become especially hard for first-time buyers to get financing, but even affluent buyers are finding it tougher to get loans.”

“The fallout is reflected in the numbers. Sales of Central Texas homes priced at less than $200,000 plummeted almost 29 percent in September from a year ago. They fell 22.7 percent for homes from $400,000 to $599,999.”

“‘I think that what’s going on is a little sobriety in the mind-set of home buyers across the board,’ said David Reed, president of CD Reed Mortgage Bankers in Austin. ‘I think people are thinking more with their pocketbooks and with less emotion. They’re asking, ‘Does this really make sense for me?’”

“Pending sales were down 27 percent last month, to 1,695, even as the number of listings shot up. With almost 10,000 homes on the market, the competition for buyers will get tougher.”

“Krisstina Wise, owner of the GoodLife Team, said Austin area sellers will have to become more realistic about what they can get for their houses. ‘Pricing a home based on yesterday’s market will not work,’ Wise said.”

The Denton Record Chronicle from Texas. “Along U.S. Highway 380, where new subdivisions are filling with homes by the hundreds each year in and around Aubrey and Cross Roads, an undercurrent of uncertainty belies the bright picture of prosperity.”

“‘We have reached a point in the development of residential real estate where the more development there is, the more there is a foreclosure issue that will come with it,’ said George Roddy Sr., president of Foreclosure Listing Service Inc. ‘As the metroplex has grown, we’ve seen more foreclosures occur.’”

“Among cities in a 10-county area with between 30 and 100 residential foreclosure postings for the first half of 2007, Cross Roads topped the list with a 338 percent increase above foreclosures as of midyear 2006. Following Cross Roads were Azle, Lake Worth, Princeton and Red Oak.”

“The average assessed value of a home posted for foreclosure in Cross Roads during the first half of this year was $193,249, which was up 38 percent over last year’s average assessed value of $140,092.”

“Among cities with at least 100 residential postings in the first half of 2007 within a 10-county area, Aubrey ranked fifth after Mansfield with a 196 percent gain, followed by Midlothian (119 percent), Frisco (57 percent) and Saginaw (55 percent.)”

“The high-growth region along U.S. 380 is indicative of what Roddy says is happening in other high-growth areas in the Dallas-Fort Worth area. ‘What has happened in the sub-prime market is with adjustable-rate mortgages and funny money loans going on in the last three to four years. It has added to the problem,’ he said.”

“Roddy describes the residential foreclosure spike as a compilation of several issues, starting with layoffs in 2000 and early 2001.”

“‘It started out as a jobs issue,’ he said. ‘As the interest rates continued to drop over the years, more and more people got involved with either refinancing at a lower rate, home equity came into play and adjustable mortgages were more a part of the real estate market.’”

“The large number of loans brought a second wave of foreclosures into the market, Roddy said. ‘People were getting into too much of a house,’ he said.”

“Then, in a third part of the cycle, the cost of living went up. Higher gas prices, higher taxes and higher utility costs put some homeowners in a financial bind.”

“‘All of these four facts have added up to some severe problems for a lot of people,’ he said. ‘When the price of gasoline has almost doubled, the utility cost has gone to the moon — it’s the normal family who has not seen an increase or much of an increase in their living wages,’ Roddy added. ‘Something’s got to give somewhere.’”

“Roddy said the immediate future looks like more of the same. ‘We’ve seen the lessening of these goofball loans, and you can quote me on that,’ he said. ‘A lot of them were goofball loans.’”

“As homeowners look to straighten out their home loans, some may find it impossible, Roddy said. ‘Those people with the adjustable-rate loans adjusting and trying to refinance, they won’t be able to do it,’ he said, referring to the tightening of credit and higher interest rates for jumbo loans.”

“The future? ‘It looks like we have another year to 18 months for high foreclosures,’ he said, barring any unforeseen market changes. ‘Past that point, if I told you what was going to happen, it would be a dream.’”

“The average assessed value of homes posted for foreclosure during the first half of this year exceeded $500,000 in four North Texas cities.”

“The highest average assessed value of homes posted for foreclosure during the first half of this year was $677,750 in Bartonville. The second highest average was $599,760 in University Park.”

“Records show that foreclosure postings of homes valued at $250,000 to $500,000 rose 35 percent; homes valued at $500,000 to $1 million rose 64 percent; and homes valued at $1 million and more shot up 83 percent.”

“The hot spots for foreclosures appear to be homes valued at more than $250,000 and in areas where significant growth in residential development is evident, Roddy said.”

The Denver Post from Colorado. “An Illinois homebuilder with several projects in Colorado plans to file for Chapter 11 bankruptcy. Neumann Homes announced this week that it had been unable to secure adequate funding to operate its business and had closed its sales, production and customer service offices.”

“It also said it has laid off most of its employees. Chief executive Kenneth Neumann blamed the situation on a ’significant downturn’ in housing markets including Denver.”

“In the metro Denver area, Neumann’s communities included Harmony Park in Westminster, Neutowne in Parker, Serenity Ridge in Aurora and Mountain Shadows in Firestone. Of the 1,095 homes Neumann planned to build in the Denver area this year, it reported selling just 81 through August, according to Hanley Wood LLC.”

“The company blamed its woes on the housing decline in three of its largest markets - Detroit, Chicago and Denver - where foreclosures have been rampant and the number of existing homes on the market has spiked.”

“‘A lot of builders out there are hurting,’ said Jay Peterson, Hanley Wood’s regional director. ‘Margins on homebuilders are thin. The market is having a pretty drastic effect on these builders.’”

“Neumann’s vacant lots will end up back on the market. Neumann had announced plans to auction off 49 properties in suburban Denver on Oct. 3. It was unclear Tuesday whether that auction was successful.”

The Coloradoan. “Norlarco Credit Union continued to bleed deposits and depositors five weeks after federal regulators confirmed they had seized the organization and dismissed its board of directors.”

“Norlarco lost $20 million in deposits and nearly 900 members from Aug. 31 to Sept. 30, according to the statement of financial condition released Tuesday.”

“That means in the five weeks after the conservatorship became public, the credit union lost nearly $52 million, a 17.2 percent drop in deposits, and about 1,500 members.”

“State regulators placed Norlarco under federal control in May after an increasing number of construction loans made in Lee County, Fla., became delinquent.”

“Norlarco has just over 1,000 real estate construction loans totaling more than $238 million in Florida, according to federal regulators. The risks are shared by other credit unions that joined in a loan participation program, but it is unclear how much of the $238 million is shared.”

“Norlarco also faces a new lawsuit filed recently by an investor in a spec home in Cape Coral alleging the credit union loaned money to investors knowing they could not repay the loan but used inflated appraisals to qualify the investors.”

“Norlarco for years continued to make construction loans in Florida, capitalizing on a building boom on the western edge of the Everglades. When the bottom fell out of the housing market in Lee County, Norlarco was left with more than 1,000 delinquent loans, most of them in Florida.”

“Norlarco CEO Bob Hamer, who took over the credit union about 18 months ago, immediately ceased the practice of loaning money for construction loans in Florida.”

The Rocky Mountain News from Colorado. “Developer Randy Nichols’ company has filed a breach-of-contract lawsuit against Hypo Real Estate Capital Corp. for failing to fund a $160 million loan for his 41-story Spire condo building across from the Colorado Convention Center.”

“Construction was halted on the 503-unit condo when Hypo pulled the plug on the loan in August. ‘Construction, which had been paid for through investor equity dollars, is on the verge of being suspended, and the entire project is in jeopardy,’ according to the lawsuit.”

“Although potential damages aren’t stated in the lawsuit, they could exceed $10 million. J.E. Dunn Construction Co. stopped work in August after completing more than $8.3 million in work.”

“The contract was signed Aug. 22, the lawsuit said. Shortly afterward, a Hypo director, David McNeil, said the documents did not mean that Hypo would fund the loan and that the company was waiting on final signatures from its corporate parent in Germany.”

“The next day, according to the lawsuit, McNeil wrote: ‘We are having difficulty on the deal with final approval from Europe. We have never had a deal get approved in N.Y. and then not get approved in Germany.’”

“On Aug. 28, Hypo informed Spire that it would not fund the loan. ‘Germany had refused the loan,’ McNeil stated, according to the lawsuit. The lawsuit said that McNeil admitted, ‘The German position defied logic and explanation.’ McNeil said telling Spire it would not fund the loan was the ‘worst thing he has had to do in his career.”

The Massachusetts realtors report on September sales. “The Massachusetts Association of REALTORS reported today that the number of single-family homes and condominiums sold in September were down over 13 percent compared to the same time last year while prices continue to remain steady. Despite the drop in sales in September, the third quarter was still the fourth most active third quarter since 1990.”

“‘Unfortunately, September wasn’t able to continue the year-to-year sales gains experienced in both July and August,’ said MAR President Doug Azarian. ‘It is definitely possible that all the reports about foreclosures, lack of financing, and the like have taken their toll and the result is that buyers are waiting on the sidelines.’”

“On a month-to-month basis, there was a 33.9 percent decrease compared to the 4,700 homes sold this past August. While a double-digit percentage decrease is typical from August to September, this was the biggest drop in over 10 years.”

“The inventory of residential properties…at the current sales pace represents approximately 12.1 months of supply. The average months of supply went up from the 7.6 months of supply seen in August, 2007.”

The Boston Globe from Massachusetts. “The summer mortgage crisis slammed the Massachusetts housing market in September, causing sales to plunge 18.7 percent.”

“Single-family home sales were 3,735 last month, down from 4,593 in September 2006, according to a monthly report from Warren Group. That was the largest decline in 12 months, when sales slid 22 percent below the previous year.”

“Realtors and analysts said prices are not dropping in line with sale totals because there are fewer and fewer homes on the market. Rather than selling for much lower prices, homeowners are simply not listing properties or are waiting out the downturn.”

“‘Inventory’s down because there’s so much doom and gloom being projected in the newspapers it’s causing people to withhold a potential sale,’ said Daniel Meegan, an agent in Salem and Beverly. Homeowners are afraid ‘they won’t be able to get the value they want out of their house,’ he said.”

“Terry Egan, editor in chief of Banker & Tradesman and other Warren publications, called September’s sales drop ’significant.’ ‘That’s reflective of what’s happening in the mortgage market,’ he said, referring to a credit crunch in July and August.”

The Boston Herald. “Experts said a sudden spike in ‘jumbo’ mortgage rates - those on loans larger than $417,000 - hit housing hard in September.”

“John Brodrick, a past president of the Massachusetts Mortgage Association, said jumbo rates ran about 1.5 percentage points higher than non-jumbo ones last month. That’s far above the normal spread of about 0.38 percent.”

“Greater Boston home foreclosures will create some $85 million in economic losses over the next two years through depressed property values, unpaid taxes and other hidden costs, a new study finds.”

“Kevin Cuff of the Massachusetts Mortgage Bankers Association said lenders are open to increased modifications ‘where appropriate…but there are cases where (a borrower’s finances are so bad) that nothing can be done.’”

“With home sales and prices dropping, it may seem like an odd time to be launching a residential real estate company. But Jon Gollinger, a veteran Boston-area real estate executive, believes he has found a sweet spot in a down market. The firm will offer a sales method steadily gaining popularity in the weak market - auctions.”

“The firm’s current focus is on so-called ‘accelerated marketing’ programs, culminating in an auction of a set of condos or homes. It is an area where Gollinger has already made a splash, having orchestrated an auction of dozens of condos last year in downtown Boston at the Folio project.”

“‘In almost every other market in the country anyone who has a new project coming out of the ground has got into a tough situation,’ Gollinger said.”

“In several markets across the country, there are now backlogs of unsold condos and homes, creating financial headaches for developers and banks. Gollinger’s pitch: He will get those units sold, maybe not at the original dream price, but at a number the builders and their financial backers can live with.”

The Enterprise from Massachusetts. “Becky Demling put her Norlen Park home up for sale earlier this month, but despite a few nibbles, she is still waiting for a buyer to bite. ‘People are coming to see it, we just have to be willing to go well below market value,’ says Demling.”

“The four-bedroom, 1.5 bath, Cape-style home…is now listed for $349,900, well below its $368,900 assessed value.”

The New York Post. “A sharp jump in the number of personal bankruptcy filings could signal growing economic uncertainty for the city. Crain’s New York Business reported yesterday that Chapter 7 and Chapter 13 filings in the five boroughs rose 69%, to 10,541, in the past year.”

“‘New York has not been immune to the housing downturn,’ an economist at the Fiscal Policy Institute, James Parrott, said, noting that an inability to pay high-interest loans and mortgages often leads people to declare bankruptcy.”

The Journal News from New York. “The sense that the market is changing is affecting buyer psychology, said Matt Mazzamurro, broker in Ossining. ‘Those with money are waiting for the bottom to fall further,’ he said.”

“Some homeowners have struggled to sell in the current market. Henry and Elizabeth Brauchler put their three-bedroom Yorktown house on the market in the spring of 2006 for $699,000. The house has been off and on the market since then, and is currently listed at $519,900.”

“‘I certainly won’t give it away,’ said Henry Brauchler. He said he thinks the increase in subprime mortgage lending has resulted in more foreclosures in the market.”

“‘There are some homeowners that have gotten money they shouldn’t have gotten, and that hurt us,’ he said.”

“In Putnam, Robert and Brenda Tracy decided last year to refinance their house in Kent so they could afford a larger house in Carmel. They bought the Carmel house in November, expecting they could sell the Kent house in a few months, ‘not knowing the market would take such a downturn,’ she said.”

“The Kent house, listed at $619,000 in the spring, remains unsold at an asking price of $499,900. Part of the problem is the trouble that potential buyers in the county are having in selling their own houses to trade up, Tracy said. High taxes and the reduced ease in obtaining mortgage money also are factors, she added.”

“‘We just take it day by day and hope one good buyer can come along,’ she said.”

From CBS 3 in Pennsylvania. “The real estate bubble has lost some of its air this year, but that doesn’t mean home sellers have to lose all hope. 3 This Old City condo has high ceilings, a chef’s kitchen and a private rooftop deck with a killer view.”

“Two years ago, it would have been snapped up in a day, but as the owner puts it on the market now, what can he expect?”

“‘We’re seeing things sit on the market longer than they have been,’ said real estate agent Chelsea Hardesty.”

“Real estate used to be all about, location, location, location, well maybe, but in a cool housing market, ‘I think the most important thing is price,’ Hardesty said.”

“Setting a realistic price is critical, especially in this buyers market. Not only do you want to attract the most potential buyers, but mortgage companies are not giving away money like they used to. If the house doesn’t appraise for the sale price, you could lose your buyer.”

The Record from New Jersey. “New Jersey builders have put on the brakes, cutting housing starts by 21 percent this year, the National Association of Home Builders said Tuesday. The builders are responding to a drop in demand from buyers.”

“‘The real estate market is in a severe and continuing contraction,’ said Patrick O’Keefe, president of the New Jersey Builders Association.”

“The housing downturn follows a boom that saw New Jersey house prices rise by about 85 percent in the first half of this decade. That far outstripped the rise in household incomes, O’Keefe said, ‘leading to an affordability problem that inevitably led to a contraction.’”

“According to the NAHB State Starts Forecast, about 24,800 housing units will be started this year in New Jersey — down significantly from the 31,400 housing starts of 2006 and the 35,000 of 2005. And builders are expected to keep production low in 2008, with about 24,200 housing starts.”

“‘People still want to buy homes; all you have to do is hit the right price,’ said Doug Fenichel, a spokesman for Red Bank-based Hovnanian Enterprises Inc., the state’s largest home builder.”

Money Magazine on Maryland. “The last time Sabrina Williams sold a home herself, she received a solid offer the first week, got her asking price of $319,000. Snap, just like that.”

“So when Williams and her husband recently decided to sell the three-bedroom townhouse they own in Germantown, Md., she figured she knew just what they had to do to find a suitable buyer.”

“‘We’d fluff up the towels, clean the carpets and buy a new chandelier,’ she says. ‘And in return we’d save thousands.’”

“But while that simple approach worked well when the couple sold their first home in 2004, that was then (then being one of the hottest real estate markets in decades) and this is now (when inventories of unsold homes are at their highest levels in nearly 15 years).”

“In the two months since they put their townhouse on the market, Williams and Cunningham haven’t gotten even one bid from a prospective buyer, and they’re already beginning to consider other options.”

“‘We can always knock down the price,’ Williams says. Or maybe, she muses, they’ll postpone selling until spring: ‘It’s not like we’re in a hurry.’”

The Daily Press from Virginia. “Builders scaled back on new housing permits by 16.9 percent the first eight months of this year compared with the same period of 2006, Old Dominion University economics researchers said.”

“The declines reflect builders’ recognition that inventory is reaching an all-time high — almost 200 percent more than in 2005, said Vinod Agarwal, an ODU economics professor. ODU Researchers released their quarterly forecast of the Hampton Roads regional economy.”

“‘Builders understand the market conditions, and they are reacting the way you would expect them to react,’ Agarwal said. And although sellers of existing homes have been slow to ratchet down prices, Agarwal said next year could see in Hampton Roads home prices fall by five percent or more.”

“‘It’s going to take some time for sellers to realize what’s happening in the marketplace,’ Agarwal said.”

“What’s happening is this: In 2004, through Sept. 30, there were 3,672 homes listed for sale. Through the same period this year, there were 14,426 active listings. The number of days on the market has risen to 66 days from 29 days.”

“‘It’s obvious the market is flooded,’ Agarwal said.”

Some housing bubble news from Wall Street and Washington. “Sales of existing homes plunged by a record amount in September as turmoil in mortgage markets added more problems to a housing industry in its worst slump in 16 years.”

“The National Association of Realtors reported Wednesday that sales of existing homes fell 8 percent in September, the largest decline to show up in records dating to 1999. The seasonally adjusted annual sales rate of 5.04 million existing homes was also the slowest pace on record.”

“The median price fell to $211,700 in September, down by 4.2 percent from the sales price a year ago. It marked the 13th time out of the past 14 months that the year-over-year sales price has decreased.”

“Lawrence Yun, NAR senior economist, said the decline is understandable. ‘Mortgage problems were peaking back in August when many of the September closings were being negotiated, and that slowed sales notably in higher priced areas that rely more on jumbo loans,’ he said.”

“Total housing inventory inched up 0.4 percent at the end of September to 4.40 million existing homes available for sale, which represents a 10.5-month supply at the current sales pace, up from a downwardly revised 9.6-month supply in August.”

“‘It appears raw inventories are stabilizing, but the housing supply is a bit inflated now because the sales pace does not reflect underlying market conditions – sales were dampened by the mortgage cancellations,’ Yun explained.”

“Single-family home sales are 19.8 percent below 5.46 million-unit pace in September 2006. Regionally, existing-home sales in the South are 18.7 percent below a year ago. In the Midwest, existing-home sales are 16.2 percent below September 2006. Existing-home sales in the West are 27.8 percent below a year ago.”

“In the Northeast, existing home sales are 13.5 percent lower than September 2006.”

From the Street.com. “Centex reported a $644 million loss for its second quarter as the plummeting housing market forced the homebuilder to record nearly $1 billion of land impairment charges. New sales orders fell 13% on a unit basis. The company also had an 8% decrease in average sales prices, as well as higher sales incentives.”

“‘Market conditions were extremely challenging during the quarter, reflecting the serious disruptions in the credit and mortgage markets that occurred during that period,’ said CEO Tim Eller. ‘In response, we meaningfully reduced prices in order to improve affordability for our home buyers.’”

The Dallas Morning News. “Centex said its home purchase cancellation rate is still running over 35 percent. Homebuilding revenue for the quarter was down more than 30 percent in the Southeast and 26 percent in the Northwest.”

The Nation’s Building News. “The pronounced weakness of housing demand has provoked major downswings in permit authorizations and housing starts since late-2005. Unfortunately, sales volume has fallen so fast that very little progress has been made in reducing inventories of unsold new homes, despite the fact that the government’s inventory numbers exclude homes left with builders due to sales cancellations.”

“The number of new homes for sale still is close to the record high reached around mid-2006 and the month’s supply moved up to a heavy 8.2 in August, as recorded by the government.”

“For-sale starts exceeded new-home sales by a huge margin during the 2005-to-2006 period, generating outsized increases in the for-sale inventory, and only recently have sales exceeded for-sale starts. Furthermore, completed homes have been accounting for a larger and larger portion of new homes for sale.”

“It’s increasingly obviously that sizeable price cuts are needed to sell completed new homes in many parts of the country. After all, prices more than doubled during the boom in some places and measures of housing affordability still remain quite low.”

“NAHB’s surveys of builders have been showing rising proportions of companies enacting price cuts as one type of sales incentive offered by builders during the past year. We’re also seeing more dramatic cuts by some companies during the past month.”

“Indeed, several public companies recently advertised discounts of up to $100,000 for special weekend sales, apparently with good success, and at least one public company has auctioned off homes with bids starting at half the list price.”

“The average price cut came to 8%, and 37% of those cutting prices had dropped them by more than 10%. But only half the builders said their price cuts had been effective in bolstering sales or limiting cancellations.”

“The housing contraction also is showing up in the employment numbers for the retail sector. In this regard, building materials and garden equipment stores lost 17,000 jobs in September and furniture and home furnishing stores lost another 2,000. Everything considered, the housing contraction now is costing the economy roughly 60,000 jobs per month and there’s certainly more to come.”

From Business Week. “Alan Greenspan said Tuesday that a bloated inventory of new homes has unsettled the U.S. economy. Homes financed by subprime loans comprised roughly 25 percent of housing starts, Greenspan said, so when the subprime market collapsed a whole segment of the sales market went with it.”

“The rapid decline in sales caught builders with a lot of their profits tied up in construction or vacant new homes, forcing them to hold ‘fire sales’ that had repercussions elsewhere in the economy. ‘Where the problem lies is in home prices — new home prices, very specifically,’ he said.”

From Kiplinger. “In Washington, D.C., agent John Sullivan says developers are ‘caving like crazy.’ He remembers one deal this past summer: ‘I might be exaggerating to say that I ‘negotiated’ a price cut,’ he says, ‘because as soon as we expressed interest in the condo, the sales rep offered to take $30,000 off the price.’ The builder also threw in a two-year lease on a second parking space.”

“Merrill Lynch stunned Wall Street for the second time this month Wednesday with the disclosure that it was forced into a $7.9 billion writedown of bad debt tied to risky mortgages and so-called structured paper.”

“The announcement marks a turning point in the credit crisis that has consumed investors in recent months and has observers wondering how much more pain will be felt by Merrill’s rivals in the brokerage industry. Revenue plunged 94% from a year ago.”

“‘In light of difficult credit markets and additional analysis by management during our quarter-end closing process, we re-examined our remaining CDO positions with more conservative assumptions,’ said Merrill chief Stanley O’Neal, whose firm pushed into the subprime lending market just last November. ‘We expect market conditions for sub-prime mortgage-related assets to continue to be uncertain and we are working to resolve the remaining impact from our positions.’”

From Bloomberg. “Ambac Financial Group Inc., the world’s second-largest bond insurer, reported its first quarterly loss after reducing the value of subprime mortgage-linked securities the company guarantees by $743 million.”

“Ambac guarantees payments on collateralized debt obligations, promising to pay CDO holders in the event of a default. The value of that insurance has tumbled in line with a slump in the price of CDOs backed by subprime mortgages.”

From Reuters. “National City Corp, a large U.S. Midwest bank, on Wednesday said third-quarter profit fell 80 percent, hurt by rising mortgage and home-equity losses. National City set aside $361 million for credit losses, up fivefold from a year earlier, as residential and home equity delinquencies, charge-offs and foreclosures increased.”

“‘Results were clearly affected by the unprecedented disruption and weakness in the mortgage and housing markets,’ CEO Peter Raskind said.”

“Results also reflected losses related to its former First Franklin Financial Corp subprime mortgage unit. National City sold the unit last year to Merrill Lynch & Co, but kept several billion dollars of loans.”

“Standard & Poor’s may cut the credit ratings of 207 Australian and New Zealand residential mortgage- backed securities as turmoil in the U.S. subprime market spreads to home-loan insurers.”

“It’s the first time in five years S&P has put securities backed by Australian and New Zealand mortgages on negative ‘creditwatch,’ said Kate Thomson, an analyst at S&P in Melbourne, said today.”

“Mortgage-backed bond sellers are already offering higher yields on securities to entice buyers back to a market that stalled in August after BNP Paribas SA, France’s largest bank, followed Bear Stearns Cos. in freezing withdrawals from hedge funds, triggering a liquidity crunch in the global credit markets.”

“Australian lenders including Calibre Financial Ltd. and FirstMac Ltd. last week sold mortgage-backed bonds at yields more than double the rate of previous sales, according to data compiled by Bloomberg.”

“Overdue payments on U.S. subprime mortgages rose to the highest level in five years in the second quarter, according to the Mortgage Bankers Association. The U.S. housing market will worsen before it improves, with home prices remaining under stress, S&P said last week.”

The Wall Street Journal. “Subprime mortgages aren’t the only challenge facing Countrywide Financial Corp., the nation’s biggest home-mortgage lender. Some loans classified as prime when they were originated are now going bad at a rapid pace.”

“These loans are known as option adjustable-rate mortgages, or option ARMs.”

“Countrywide first offered these loans in 2003 and quickly became a leader in this profitable and growing part of the mortgage market. Mortgage brokers liked the higher commissions and borrowers were drawn to low payments. As lending standards loosened, more of these loans included less-than-full documentation.”

“In addition, at Countrywide, ‘they were giving these loans to riskier and riskier borrowers,’ says UBS analyst Shumin Li.”

“Among option ARMs held in its own portfolio, 5.7% were at least 30 days past due as of June 30, the measure Countrywide uses. That’s up from 1.6% a year earlier. Countrywide held $27.8 billion of option ARMs as of June 30, accounting for about 41% of the loans held as investments by its savings bank. An additional $122 billion have been packaged into securities sold to investors, according to UBS.”

“From 2009 to 2011, monthly payments on some $229 billion of option ARMs will be adjusted to include market-rate interest and principal, according to Moody’s Economy.com. More than 80% of borrowers who are current on these loans make only the minimum payment, according to UBS.”

“CEO Angelo Mozilo told investors in September 2006 that he was ’shocked’ so many people were making the minimum payment. He called a sampling of borrowers to find out why. The ‘general answer…was that the value of my home is going up at a faster rate than the negative amortization,’ he said. ‘I realized I was talking to a group…that had never seen in their adult life real-estate values go down.’”

“Of the option ARMs it issued last year, 91% were ‘low-doc’ mortgages in which the borrower didn’t fully document income or assets, according to UBS, compared with an industry average of 88% that year. In 2004, 78% of Countrywide’s option ARMs carried less than full documentation.”

“Countrywide also allowed borrowers to put down as little as 5% of a home’s price and offered ‘piggyback mortgages.’”

“In one California branch office, employees could win prizes, such as a trip to Hawaii, for selling the most option ARMs, says Cindy Lau, who worked for the company for more than six years. Only a small portion of borrowers ‘understood the loan and knew what they were getting themselves into,’ Ms. Lau adds. She says she was fired in August for low production.”

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