The Housing Bubble

The Orange County Register reports from California. “John and Grayce Coffman could lose the Fullerton home they bought in 1977 because they can’t keep up with their mortgage’s rising costs. The Coffmans, who are unemployed and in their 60s, borrowed $552,300 from Countrywide Financial, the largest U.S. home lender, in the summer of 2005. Despite making about $50,000 in payments since then, they now owe more than $590,000 to Countrywide.”

“They took out a loan that allowed them to make a low monthly payment, but tacked the unpaid interest onto the loan balance. Now the Coffmans say they can’t afford the minimum payment of more than $2,000 a month, which has gone up from $1,776 when they first got the loan.”

“And they certainly can’t make the fully amortized payment of more than $4,500, which would be roughly 80 percent of their income. The Coffmans earn about $5,400 a month from Social Security and government assistance for five of their six adopted grandchildren, according to the Coffmans and their recent bank statements.”

“The Coffmans, who don’t have any subprime loans. Their 1 percent teaser rate ended a little more than a month after they received their loan.”

“The Coffmans admit responsibility for getting deep into debt. They bought their two-story home for $97,000 in 1977 and have since extracted all the equity gain in it. They’ve cashed out $600,000 in home equity with the help of several lenders.”

“After taking out a second mortgage in February from Wells Fargo for $114,855, they now owe about $700,000 on their home, which is worth about the same, according to a Web site that evaluates a home’s market worth.”

“There is no equity left to pay for a refinance, and they couldn’t afford payments on any other loan even if they could, the Coffmans say.”

“‘How did it happen? I can’t tell you,’ Grayce Coffman said. ‘We just made some really bad decisions.’”

“Jeff Altman, a partner with WestCal Mortgage Corp.in Orange, said falling home prices are another strike against the Coffmans. ‘Because they don’t have the equity, it’s the kiss of death in this case,’ Altman said.”

“It wasn’t until The Orange County Register contacted Countrywide about the Coffmans’ situation that the lender offered the family help. Countrywide said the Register’s inquiry led to a faster response but not to special treatment.”

“Otherwise, the Coffmans, who have missed two mortgage payments, would have had until Dec. 16 to pay or the lender would initiate foreclosure, according to an earlier letter from Countrywide.”

“‘I’m planning on staying here,’ Grayce Coffman said. ‘They are going to have to drag me out.’”

“Countrywide has offered to lower the Coffmans’ interest rate and cap it at 5 percent from about 8 percent currently. They could also skip payments until February, with all missed payments added to the principal balance.”

The Press Telegram. “Abel Rosales wishes he did earn the kind of monthly income that a mortgage broker reported for him on forms that enabled the Long Beach man to take out a second mortgage on his home. He took the broker’s advice, sight unseen, and got a second adjustable mortgage, with a promise from the broker he would get a third mortgage with fixed-rate financing.”

“Rosales earns a decent living, but the first mortgage reset to nearly $3,000 per month and the second added nearly another $2,000 per month. There was no way he could make the combined payments. And because the broker, who he only dealt with over the phone, significantly beefed up his reported monthly income, a fact he found out too late, he was unable to get a third mortgage without again misrepresenting his income.”

“Rosales, his wife and their two children now find themselves renters living in Lakewood. ‘The lesson I learned is never deal with anyone over the phone,’ he said, adding, ‘And do research.’”

“Rosales didn’t let himself go into foreclosure. Instead, he made arrangements to conduct what’s known as a short sell.”

“Keith Higginbotham and his wife saw their first, and then second, mortgage payments literally go through the roof, rising to $6,000 per month. Both say they knew it could have happened, but only as a worse case scenario. It was something they were willing to risk for the American Dream of home ownership.”

“Even before the reset, the rent was high. And when the couple took the second mortgage, it only seemed to make things worse. ‘For what we were paying before it went up, we could have rented a house in one of the nicest neighborhoods in Long Beach,’ Higginbotham said.”

“Facing foreclosure, the couple turned to their Realtor (who) negotiated with the lender and helped the couple begin the process of a short sale. The couple have since moved from their home, and are short selling it with an asking price of $440,000, far from the $551,000 they paid for it in 2005.”

“Also going through the roof is the number of short sales occurring. ‘We’ve been very busy,” said Eli Tene, president and CEO of Woodland Hills-based iShortSale Inc. The company has brokered more than 2,000 short sales in the past year, and in the last six months the company has seen short sales grow by half every month.”

“‘Every month we get 50 percent more volume,’ Tene said.”

The Santa Maria Times. “More than five times as many Santa Barbara County homes are expected to go into foreclosure this year as last year.”

“‘I do look at (the first part of 2008) to be the worst part in the process,’ said economist Mark Schniepp. ‘Then the rest of 2008 to see a gradual diminishing of foreclosure.’”

“In northern Santa Barbara County, the median price of a home in October fell by 18 percent from a year ago, according to the association, to $360,870.”

“Local experts don’t see real estate problems dragging the larger economy down into a recession. The economic trouble is ’staying there (in the residential real estate sector) because the slow-down emanated there,’ Schniepp said. ‘(There was) too big of a run-up in prices, too many sales, fostered by easy financing. The problem started there and is remaining there.’”

“Lawnae Hunter, owner and broker of Plus Property Management, blames a lack of common sense for the market’s current state.”

“‘I think there was a frenzy element that if you didn’t get in (to a home) you would never have an opportunity, so people were willing to take marginal loans just to get into the market,’ she said. ‘And there was an element of greed from unscrupulous lending practices, a promotion at the federal level to get people in housing at any cost, and common sense just went out the window.’”

“‘(We are) back to where we used to be,’ said Kirk Lesh, real estate economist for the UCSB Economic Forecast Project. ‘Back to verifying the income payment ratio, back to the old style, and making sure they are lending money to people who can pay.’”

“David Brown, a Los Olivos-based real estate broker who is also president of the north Central Coast chapter of the California Mortgage Brokers Association, blamed the rise in subprime lending on inexperienced Wall Street traders who handled these loans, who relied on models that showed property continuing to appreciate.”

“‘These folks had never seen a down market,’ he said.”

The News Sentinel. “The real estate market’s downturn in San Joaquin County and throughout the nation has not only affected homeowners, it’s also hurt the professionals who serve them. Real estate, lending, appraisal and title company offices have laid off employees and closed offices during the housing slump.”

“‘They’re laying off long-time employees right and left,’ said Lodi Realtor Rose Mendonca. ‘It’s a sign of the times.’”

“‘(Real estate) sales activity in the area has gone away,’ said John Knight, who teaches finance and real estate at University of the Pacific in Stockton. ‘The offices that were supporting 10 or 15 employees in the boom days of 2005 — we have quadruple the inventory, and sales have declined substantially.’”

“Banks own 211 foreclosed properties in Lodi. Another 354 properties were listed as pre-foreclosures and sold cheaply, Mendonca said. Those 354 properties, which were delinquent on payments, would have gone into foreclosure if they weren’t sold quickly, Mendonca said.”

“There are 500 properties for sale in the Lodi area. Normally, there are only about 100 during a given month.”

“Local experts aren’t so sure that President Bush’s plan to freeze adjustable interest rates will help too much. ‘I think it is a short-term relief for some homeowners, but it postpones the day of reckoning,’ said Brian Hyzdu, president and CEO for Service 1st Bank. ‘They have too much debt for too big of a burden that their cash flow doesn’t allow them to service.’”

The Times Standard. “In October, HSU Economics Chairman Erick Eschker predicted that home values in the county could fall by as much as 40 percent, an assertion that was widely and vehemently challenged by local developers and real estate brokers.”

“Larry Doss, president of the Humboldt Association of Realtors, took out a full-page ad in this newspaper disputing Eschker’s claims.”

“There were three years in a row — 2003 through 2005 — when the average home price in the county jumped by more than 20 percent. ‘Normal is up 2 or 5 percent,’ said Doss.”

“He believes that the market has settled back down to a normal level for the area, and that there’s no reason to expect a dramatic fall in local home values.”

“‘We experienced an adjustment positively rather than negatively,’ he said. ‘Our demand is staying strong because we didn’t have the crazy developing (that occurred) in Stockton and Sacramento, where it’s flat.’”

“But Dan Johnson, CEO of Danco, a local development company, disputes that claim. ‘I’ve been in the business 30 years,’ he said, ‘and the early ’90s was bad, but nothing like this.’”

“Danco is in the process of trying to sell units in two new subdivisions, without much success. ‘I haven’t seen prices come down much, but I haven’t seen much activity either,’ said Johnson. ‘It’s very slow.’”

“Eschker said the most recent figures confirm Johnson’s impression. ‘The quantity of homes sold is way down,’ he noted. ‘September sales were one of the 20 worst (months) we’ve seen since October of ‘89….We’ve never seen prices go up so quickly across the nation, and never seen prices fall so quickly except in the Great Depression.’”

“Johnson, like Doss, feels that there is not enough room for local housing prices to drop as much as they have in the rest of the nation. If they do, he said, his company will start losing money.”

“‘Costs can’t drop 40 percent in the next year. We can’t drop the prices on these things and continue to sell them. You can’t give it away; you’ve got to make a living,’ said Johnson.”

“Jim Dalton, a former licensed real estate appraiser and current licensed real estate broker, said the drop hasn’t been nearly as pronounced locally as across the state and nation. ‘Based on what I’ve seen,’ he continued, ‘the (local) market has gone down to plus or minus 2004 levels.’”

“Dalton agrees with Doss and Johnson that the county likely will avoid the 30-40 percent drop that Eschker predicts. ‘Humboldt County is very insulated,’ he said.”

“According to the Humboldt Association of Realtors’ Web site, Humboldt County’s most recent affordability index, a measure of the percentage of families that could afford a median-priced home, is at 11 percent.”

“‘It was in the 50 percent range in 2000,’ said Eschker. ‘More folks need to talk about affordability.’”

“Whether or not the housing market plummets — and whether or not that’s a good thing — will undoubtedly continue as a source of fierce debate and speculation. ‘I can’t read the crystal ball,’ said Johnson. ‘I’d hope that history continues to repeat itself, but I have no idea where it’s going.’”

“When it comes right down to it, he added, nobody knows for sure. ‘None of the experts saw this (drop) coming,’ he said. ‘“So why should we listen to them now?’”

The Journal Star reports from Illinois. “We’re not supposed to have much of a sub-prime crisis here. So an ad for a real estate auction caught my eye. ‘In a buyer’s market, YOU should be BUYING!!!’ it said. If the stony-faced buyers gathered last Wednesday are any indicator, be glad that Peoria is supposedly doing well.”

“The auction company will take the top bids to the seller. A minimum has been set. But sometimes the sellers will take less. The first house on his slate has two bedrooms, hardwood floors, one bath and a concrete block garage out back.”

“‘How much? What will you give for it?’ auctioneer Joe Cotten cajoles, and the sing-song begins. ‘How-much? How-much-will-you-give-for-it? One hundred thousand dollars? I see smiles. It’s a buyer’s market.’”

“A grin flickers here and there, but that is the last of the frivolity. Even for a first-time buyer, even for a rental property, Cotten can’t get a bid until he drops the price to $30,000. There is a brief flurry of activity. It stops at $48,000, which is less than the seller’s minimum. No sale.”

“House Two has three bedrooms and one bath, a new roof, siding and windows. Bidding stops at $15,500. ‘You can make it up in six months rent!’ Cotten pleads. No takers.”

“House Three has three to four bedrooms, a bath and a 2001 furnace. It rented for $525 a month. Bidding starts at $10,000. No one bites. No bids at all.”

“And so it goes. At the end of the first round of bidding, none of them sells, even at prices less than a good used car. Contacted later, Cotten says he ended up selling four of the 17 houses after some haggling in a later round of auctions. He did not think it was appropriate for him to comment much, but this was one of the worst sales he’s had in almost 30 years of business. Things have slowed.”

“‘I don’t know why people aren’t buying. Interest is good. There’s plenty to choose from out there,’ Cotten muses. ‘It’s a buyer’s market. They should be buying.’”

The Chicago Tribune from Illinois. “A new monthly report from a pair of Chicago real estate appraisers says there’s likely to be a decline in the number of houses for sale in the area this month, though one shouldn’t read too much into it.”

“Naperville appraiser Chip Wagner, who collaborates with appraiser Robert Headrick to produce the report, says that if home sellers follow traditional patterns, inventories will stabilize or decline in the next three months.”

“In the current environment, though, it probably just means that significant numbers of sellers will yank their homes off the market through the holidays.”

“The appraisers’ report offers a snapshot of how long homes stayed on the market before going under contract in the last year.”

“Homes priced $100,000 to $300,000 took 111 days to sell; Homes priced $300,000 to $500,000 took 130 days; Homes priced $500,000 to $750,000 took 148 days; Homes priced $750,000 and more took 194 days.”

“Those, of course, are the ones that went under contract; active listings (that is, on the market but unsold) were averaging 153 days, 175 days, 200 days and 242 days, respectively, as of mid-November, the appraisers said.”

The Quad City Times from Iowa. “The house on West 14th Street in Davenport has a list of owners and tenants that ends with Deutsche Bank. Foreclosed upon and sold to Deutsche Bank at a sheriff’s sale in August for $72,419, the four-bedroom home is assessed at $51,840.”

“The house is one of 49 foreclosed properties in Davenport now listed for sale, according to statistics presented Saturday at the Quad-Cities Reinvestment Coalition’s foreclosure summit. Its asking price? $11,900.”

“‘These are people who are no longer homeowners,’ said Dawn Mutum-Plies, housing director for United Neighbors (a) Davenport organization working to prevent foreclosures. ‘People are losing their homes for a nominal amount of money,’ sometimes as little as $2,000, she said.”

“So far this year, 255 houses have been foreclosed upon in Davenport, with another 13 anticipated before the end of December, statistics show. That is a nearly 100 percent increase since 2005.”

“Ninety-two of the foreclosed upon properties in Davenport have sold, statistics from the coalition shows. The average sales price per property was $25,000 below assessed value.”

The Journal Sentinel from Wisconsin. “Many hopes for a big revitalization boost for Racine have been riding on planned development that has been touted as ‘Miami meets Cape Cod,’ but there has been little movement on the project.”

“Whether the stall of Pointe Blue is just temporary or ends up being fatal should not be seen as a strike to Racine, area leaders say.”

“‘I wouldn’t pin the entire future of the city on this project and, just because it’s stalled doesn’t mean it’s headed for the skids. I’m still bullish on Racine’s future,’ said Ald. Greg Helding, who serves on the Plan Commission.”

“Pointe Blue, the ambitious condominium development planned for Racine’s lakefront, is having trouble obtaining financing, which has delayed the start of construction. Developer Scott Fergus had hoped to begin work last April on the project, which carries an estimated $120 million price tag. But difficulties among large commercial lenders have affected Fergus’ ability to secure property acquisition and construction loans for the 434-unit development, said Brian O’Connell, Racine’s city development director.”

“Helding said the hold-up on Pointe Blue is clearly a national issue and shouldn’t be seen as a reflection on Racine. ‘It’s unfortunate that a lot of upper-middle- and lower-middle-class people who have overextended themselves will potentially end up hurting a program in the city of Racine. That’s my read on the subprime problem.’”

“‘I think (the Pointe Blue delay) speaks more about the problems in the financing market than on investing in Racine,’ Helding said.”

“At Pointe Blue, 26% of the condos have been sold, according to the development’s Web site. Because of tighter credit standards, some lenders are requiring condo developers to pre-sell 40% of their units in order to obtain loans.”

“Pointe Blue condo prices range from $200,277 for a 900-square-foot unit to $995,000 for a 2,600-square-foot waterfront villa. Pointe Blue offers a mix of townhouses, villas and single-family homes, as well as units that would be in three towers.”

“Only 17% of the units planned for the towers - one with 15 stories, along with two eight-story buildings - have been sold, according to the Web site.”

“Ald. James Kaplan, whose district includes the Pointe Blue project, said he is remaining optimistic the project will move forward. ‘I think it’s such a fantastic site, almost like an unfinished diamond that just really needs refining,’ Kaplan said.”

The Wall Street Journal on Minnesota. “Nationally, there were 2.1 million vacant homes for sale in the third quarter, equal to 1.6% of all the homes in the country — a record.”
“At the end of 2006, the value of all homes in the U.S., excluding rentals, peaked at 153% of gross domestic product (or about $21 trillion), the highest level in at least six decades. By Sept. 30, that had edged down to 150% of GDP as home prices began to drop. With huge inventories of unsold homes soon to swell with foreclosed properties, that is likely to continue.”

“The downturn is particularly tough on those surrounded by foreclosed homes. Melissa Pohlman and her husband bought a renovated home in North Minneapolis’s down-at-the-heels Jordan neighborhood three years ago for $205,000. It was most recently assessed by the city at $230,000.”

“Ms. Pohlman hoped it would eventually rise to $240,000, at which point they would have enough equity to stop paying $160 a month for private mortgage insurance.”

“But hundreds of homes in the area are being foreclosed, and she doesn’t even ‘want to know’ what it is worth now. ‘You’re dealing with an already transient neighborhood and then you heap on top of that a ton of foreclosures — there are a lot of vacant homes, a lot of houses that are boarded up.’”

Some housing bubble news from Wall Street and Washington. “The Pending Home Sales Index…remained 18.4 percent below the October 2006 index of 106.8 The PHSI in the Northeast is 11.1 percent below a year ago. In the West, the index is 16.9 percent lower than October 2006. The index in the Midwest is 11.7 percent below a year ago. In the South, the index is 25.3 percent below October 2006.”

“New-home sales are forecast at 788,000 this year and 693,000 in 2008, down from 1.05 million 2006; no sustained improvement is seen for new homes until 2009. Housing starts, including multifamily units, will probably total 1.36 million this year and 1.16 million in 2008, down from 1.80 million last year.”

The Associated Press. “The trade group’s seasonally adjusted index of pending sales for existing homes (was) the third-largest year-over year decline on record.”

“The revised monthly forecast from the National Association of Realtors, which followed nine straight months of downward revisions, calls for U.S. existing home sales to fall 12.5 percent this year to 5.67 million,- the lowest level since 2002.”

“Bucking conventional wisdom, (the) trade group said the battered housing market is on the verge of stabilizing and inched up its outlook for 2007 and 2008 home sales.”

“‘Despite over-exaggerated negative coverage on the housing conditions, many local markets are actually seeing price increases,’ said the trade group’s chief economist, Lawrence Yun at a press briefing. ‘Mortgage availability is improving.’”

The New York Times. “UBS became the latest Western bank to seek a financial lifeline from the cash-rich East today, selling a stake of more than 10 percent to investors from Singapore and the Middle East as it wrote down $10 billion more in mortgage-related assets.”

“The two investors — the Government of Singapore Investment Corporation and an unidentified Middle East investor — will inject $9.7 billion and $1.8 billion, respectively, into the troubled Swiss bank.”

“For UBS, said said David Williams, the head of banking research in London at (an) investment bank, it was an ‘interesting and depressing’ day. ‘Only a year ago,’ he noted, ‘this was considered one of the most financially sound institutions in the world.’”

From Business Week. “Lloyds TSB PLC said Monday that it was taking a $410.6 million hit from its exposure to the global credit crisis. The 201-million pound writedown came from an array of financial instruments affected by the crunch, including an 89 million pound ($181.8 million) exposure to mortgage-backed bonds and a 90 million pound ($183.8 million) exposure to Cancara, a ‘conduit’ company used to raise short-term funds.”

“A further 22 million pounds ($44.9 million) was lost on structured investment vehicles, or SIVs.”

Dow Jones Newswires. “French bank Societe Generale SA on Monday said it will bail out an $4.3 billion investment fund it owns that was hit by the global credit turmoil. The move by France’s second-largest bank by market value, to take this fund, a structured investment vehicle or SIV, onto its own balance sheet underscores still deteriorating liquidity conditions in credit markets.”

“As of Nov. 30, PACE had a total asset size of $4.3 billion and is composed of 75% of Moody’s Aaa rated assets, 13% rated Aa, 9% rated A, and 3% rated Baa.”

“Pierre Chedeville, a Paris-based analyst said this is obviously bad news for SocGen. ‘But, above all, it shows that the crisis is not over yet, contrary to what some people thought,’ he added.”

From Bloomberg. “Societe Generale is following London-based HSBC Holdings Plc and Rabobank Groep NV of Utrecht, Netherlands, in rescuing structured investment vehicles. Societe Generale was ‘very close’ to having to cede control of its Premier Asset Collateralized Entity Ltd., or PACE, to an outside trustee, Standard & Poor’s said Dec. 7.”

“‘They jumped before they were pushed to avoid being forced to sell assets,’ said Nigel Myer, a credit analyst in London.”

“The bailouts by Societe Generale, HSBC and Rabobank further limit the role of the proposed $80 billion ‘SuperSIV’ fund being set up by Citigroup Inc., Bank of America Corp. and JPMorgan Chase & Co. and sponsored by U.S. Treasury Secretary Henry Paulson.”

“The so-called master liquidity enhancement conduit, or M- LEC, is aimed at addressing the fallout from U.S. home loan defaults. Investors have shunned the short-term debt used by SIVs to finance purchases of higher-yielding securities because of concern about holdings related to mortgages.”

“Today, after a month of false starts, a new superfund created by the banks to keep the crisis in housing-related debt from deepening will begin raising money from financial institutions. But the role of this new entity, established at the behest of the Treasury, is already coming into question. And HSBC and several other European banks are moving to solve their problems on their own.”

“The new superfund, announced with much fanfare in mid-October, now looks increasingly irrelevant. Originally it was thought that the entity, called M-LEC, might raise as much as $80 billion that could prevent a sharp sell-off in securities owned by structured investment vehicles, or SIVs. Now, the M-LEC, known on Wall Street as the Super SIV, may raise just $60 billion, in part because many of the troubled SIVs are winding down themselves.”

“‘Who needs a Super SIV anyway?’ asks Alex Roever, a JPMorgan Chase fixed-income analyst, in a new research report. ‘There certainly seems to be a shrinking supply of SIVs to save.’”

The Wall Street Journal. “Over the past decade, Wall Street built a market for more than $2 trillion in securities sold globally and backed by loans to U.S. homeowners on two long-accepted beliefs and one newer one. The prevailing logic: The value of the American home would never fall nationwide, and people would almost always make their mortgage payments.”

“In a matter of months, though, much of the promise of the new financial architecture — together with its underlying assumptions — has proven to be a mirage.”

“The new financial system, shifting risk from banks to securities markets, has worked ‘pretty well’ up until now, says former Federal Reserve Chairman Paul Volcker. ‘We’re going to find out if it works well for a major-league crisis.’”

“Housing fits a pattern George Soros, the 77-year-old chairman of Soros Fund Management, has observed since he entered the investment business in the 1960s. But often a flood of capital makes an asset’s fundamentals seem sounder than they really are, attracting even more capital.”

“‘Eventually, you reach a turning point,’ he says, ‘where the value of the collateral begins to decline, which reduces the willingness to lend, which reinforces the fall in the value of the collateral.’”

“‘There usually has to be a flaw in people’s perceptions to set a boom-bust sequence into motion,’ Mr. Soros says. In the case of housing, he says, it was the assumption that, because home prices fall nationwide only in a severe economic slump, a diversified portfolio of U.S. mortgages made for a very safe investment.”

“‘We’ve seen an unprecedented decline in market liquidity, really beyond what we thought possible,’ says Noel Kirnon, executive VP in charge of structured finance at Moody’s Investors Service, one of the two large ratings firms.”

The Washington Post. “It will take years to determine who bears the primary responsibility for the current mortgage mess. But a piece of the puzzle fell into place last week with a story by my Post colleague David Hilzenrath about Freddie Mac’s decision in 2005 to begin dealing in a significant way with ‘piggyback’ loans that effectively allowed homeowners to borrow more than 80 percent of a property’s value — the limit set by Freddie’s congressional charter.”

“‘I think that what happened over time is we found that our own caution was making us less and less relevant, and we weren’t sure, quite frankly, that our competitors [on Wall Street] were being crazy,’ explained Anthony Piszel, Freddie’s chief financial officer. ‘Could we have run for the hills and said we’re not going to do any of that? What if things didn’t go down? We would basically be just taking our whole future and giving it away.’”

National Mortgage News. “Rags to riches loan officer/loan broker stories. “Imagine my surprise when I attended a family reunion two years ago and found out that my niece’s new husband is now a loan officer. Now mind you, he is a decent guy, but for crying out loud he has zero training in finance and was previously waiting tables. It gets even better. Then my older sister comes to me and tells me that she is now a loan officer! Yikes, this girl is a hairdresser. She can’t manage her own finances and of course has zero training as well!’ — R.W.”

The Telegraph. “The seven pillars of global demand over the last year - measured by current account deficits - have been the United States ($793bn) (£388bn), Spain ($126bn), Britain ($87bn), Australian ($50bn) Italy ($48bn), Greece ($42bn), and Turkey ($34bn). Most are facing a housing bust. All are in trouble.”

“Note that Goldman Sachs, Morgan Stanley, and Lehman Brothers, have all begun to tear up the ‘decoupling” manual. - the pre-crunch script assuring us that the world could get along fine as the US buckled.’”

“‘What began as a U.S.-specific shock is morphing into a global shock,’ said Peter Berezin, a Goldman Sachs strategist. ‘There is a clear risk that some of the hot housing markets in Europe and some emerging markets will cool dramatically.’”

“In Europe, not a single junk bond has been issued since August. Spreads on Euribor - the rate used to price mortgages in Spain, France, Italy, and Ireland - reached 93 basis points last week, a new record. This is tantamount to four rate rises for homeowners.”

“Investors expect the global credit squeeze to continue beyond the first quarter of 2008, according to the Bank for International Settlements.”

“Models using derivatives based on money-market rates signal ‘expectations of a persistent lack of liquidity and lasting concerns about counterparty risk,’ the BIS said in its latest quarterly survey.”

The Independent. “Let’s just pretend that 2006 never happened. Certainly, it shouldn’t have happened. The Stalinesque idea of airbrushing last year from the economic history books came from Ulster Bank economist Pat McArdle.”

“The blip was caused by the housing market, and ended because of it. Once people finally got it into their heads that house prices were too high, they stopped buying. So few sales are taking place that figures for current prices are largely meaningless.”

“In a rational world, the 12per cent rise would not have taken place and prices would have fallen as rates rose. A drop of 5-10 per cent might have maintained affordability at its historically stable figure of around 28 per cent of disposable income. Now, even allowing for rising incomes, they will have to fall by 15-20 per cent. This has probably happened already, but few are willing to sell. Until now.”

“The world is not rational and there are few things as irrational as a market in the grip of manic optimism or terror. It is remarkable, though, how they tend to exhibit the same characteristics. The US market turned down some months before ours, and is worth watching. For the first 15 months or so, sellers maintained their asking prices. Then they cracked.”

“Lo and behold, some 15 months after the Irish downturn comes news that apartments in Ashtown, Co Dublin, have had their prices cut by 20 per cent. The danger, as other developers well know, is that once this starts, it can go beyond what is rational.”

“In the early Nineties, Irish houses were so cheap they could be bought with little more than 20 per cent of disposable income.”

The Gazette. “For years, observers have asked when the Dubai housing market was going to crash. Yet every year, prices for the upscale homes, villas and condominiums going up across the city of 1.6 million people show no sign of faltering.”

“‘This is what people ask and we never know the answer,’ said Linda Mahoney, the Montreal-born CEO of the Dubai real estate agency Better Homes.”

“‘But there’s no bubble,’ insisted Mahoney, who has about 400 employees. ‘You know how many years I’ve been listening to this bubble stuff? The economy here is very strong. This doesn’t have a flavour-of-the-month feeling.’”

“‘Ever since I came here, people said this couldn’t possibly continue,’ DMG managing director Bernard Walsh said. ‘But it does. The ambition is endless.’”

“According to the database company Proleads, there are 3,400 active construction projects in these Gulf countries, with a total combined value exceeding $2.4 trillion.”

“‘It’s like Las Vegas on crack,’ one Canadian businesswoman observed.”

“Robert Lee, executive director of investment projects with the Dubai government-run real-estate group Nakheel, said his company’s grandiose projects - including three man-made islands in the shape of palms - are based on due diligence.”

“‘Coming from the West we’re trained to be risk-aware. Here, we’re trained to take smart risks,’ the Vancouver native said. ‘When a consultant says you can’t do it, we say: ‘Great, we’ll do it because no one else will be doing it.’”

The Orlando Sentinel reports from Florida. “The moderately upscale MetroWest residential development is a microcosm of the Central Florida market in many ways. But the real-estate glut and slump are more severe there, according to local Realtors. ‘The condo and town-house market is very, very quiet,’ said veteran Realtor Tony Marino in Orlando. ‘A lot of the listings and prices are back to 2004 levels, but [there are] not a lot of takers. They’re stacking up like cordwood.’”

“More than 500 homes and condos are listed in the MetroWest area in the Realtor’s MLS — within a 1-square-mile area. ‘That’s a lot,’ said broker Jon Shehan.”

The Herald Tribune. “In a national monthly survey of real estate agents, Bank of America Securities summed up November as ‘another quiet month with few buyers swayed by lower prices.’”

“Sarasota, the 45th largest market in the country, was included in the real estate survey released this month. Bank of America found that traffic ‘well below’” agents’ expectations.”

“‘Buyer traffic deteriorated in November,’ the survey concluded. The ‘traffic index fell to 19.6 from 23.5 in October, well below agents’ expectations. A reading of 50 would suggest buyer traffic in line with agents’ expectations.”

“Sarasota’s price index fell to 9.1 in November from 11.8 in October, pointing to sequentially lower home prices. Again, readings below 50 point to lower prices during the past 30 days.”

“Eighty-two percent of agents said prices were lower and 18 percent said they were unchanged.”

“Rod Underdahl of Horizon Realty agrees that prices have gone down. ‘They have dropped quite a bit,’ he said. ‘In several subdivisions where homes were selling for about $500,000 not so long ago they are now being offered at $350,000 to $375,000, which makes me think we must be nearing the bottom since there comes a point where sellers can’t afford to take offers below what they owe on the home.’”

“Lynn Robbins, director of business development for Coldwell Banker Residential Real Estate, also pointed out that home sellers at year end face stiff competition from new home builders that often unload excess inventory at fire sale prices. ‘You see some sweetheart deals in developer inventory at year end,’ she said.”

“Realtor Linda Higgins tends to disagree with the survey. ‘The bottom is here because so many customers would rather take their homes off the market than go lower,’ she said.”

“Nationally, agents noted price declines in every market that was surveyed, Bank of America reported. ‘What was interesting is that few agents noted any positive buyer response to the lower prices, primarily as buyers remained concerned about buying before the bottom,’ the survey said.”

“‘Agents noted that the increased spreads on jumbo mortgages as a result of tighter credit availability is hurting sales at the high end and more conservative appraisals are dampening overall volume,’ the report said.”

The Wall Street Journal. “Chris Delzio, a securities broker in New York, moved to Palm Bay, Fla., in 2003 and bought two town houses, each for $75,000. Within two years, he had sold both for double what he paid and plowed the profits into land to build five new homes. Compared to staring at a securities-trading screen, he says, ‘It was fun, driving around, looking at the properties. You’re out, talking, negotiating.’”

“Then, buyers stopped coming. Mr. Delzio listed one home, on which he spent $203,000, at $210,000. He then cut the price repeatedly, finally to $175,000. He now rents it for $800 morents it for $800 month, well short of the $1,400 monthly carrying cost.”

The Christian Science Monitor. “Leigh Strand…the founder of Grill it Yourself Inc., had a booming business a year ago helping Florida homeowners create outdoor kitchens and a barbecue lifestyle to match. Now, her shop is as quiet as the hundreds of nearby homes that stand empty with ‘for sale’ signs planted out front.”

“There are customers – including some who have laid out big plans – but hardly any are moving ahead with a major purchase. Recently, ‘I had the choice between paying my mortgage or paying my employees,’ Mrs. Strand says. ‘I paid my employees…. I’m not giving up. I’m not going down.’”

“Welcome to Cape Coral, where residents are banking on a combination of grit and the lure of local amenities to see them through a housing recession that’s as bad as any in the US. During four boom years,…much of the momentum came from speculators, who banked on a continued surge. Now, that trend has reversed.”

“For homeowners, falling land values can affect everyday spending. Brent Legere, a pizza house worker in Cape Coral, bought a $207,000 home last year. Currently, he figures it’s worth much less than that, and a year from now he will see his adjustable mortgage payment reset.” “‘I was going to do some upgrades,’ he says, as he waits for customers. But now he’s hoarding all the cash he can. ‘I might need it.’”

“Those who bought properties as investments are feeling the pinch as well. Scott St. Blanc, who came to Fort Myers five years ago, gets income as landlord for three homes he owns here. In the current market, he’s had to lower the fees for some tenants. ‘To keep them, I had to drop the rent to $1,200 from $1,400,’ he says.”

“In construction, the next year may see less than 1,000 new homes built, down from 8,500 a couple of years ago. ‘The economic engine for a long time was building new homes,’ says Mike Quaintance, president of the local Chamber of Commerce. “That’s a significant revenue stream that is gone.”

“It’s a real estate storm that made landfall like a slow-moving Gulf Coast hurricane here in south Florida and in other once-booming housing markets last year. In recent months it has gathered momentum and spread, shaping up to become perhaps the worst home-price slump since the 1920s and ’30s.”

“‘We are in the aftermath of the biggest housing boom in history,’ says Robert Shiller, a Yale University economist. ‘We are in a period of exceptional uncertainty about the value of our homes.’”

“It is that issue – how far home prices rose – that sets this bust apart from other US housing downturns in the past century. This is more than a typical cycle where the pace of home building plummets. And this goes well beyond a crisis of subprime borrowers.”

“In Florida, many of the buyers who got burned were investors who expected to buy and then quickly resell homes in a rising market. ‘There’s a lot of people that stuck their neck out,’ says Richard Ray, a longtime resident who works at a marina in Cape Coral, with a rate of foreclosures in process – 5.4 percent of all mortgages – that leads the nation.”

“Many people who never intended to ride a real estate wave are also at risk. ‘You see all these empty houses now,’ says Ann Bala, a Cape Coral resident who is losing her home. An injury sidelined her from work, and then she was squeezed between a rising mortgage rate and a falling home value. ‘It’s not even worth $100,000 anymore,’ she says.”

“‘My phone has been ringing off the hook,’ says Steve Jones, who counsels people at risk of foreclosure in the area.”

From Barrons. “When real estate markets sour, owners of luxury homes and condos sometimes cling to a comforting theory, at least in the slump’s early stages: Their properties are pretty much immune to a downturn. Alas, reality and theory don’t always coincide.”

“Consider Sarasota, Fla., a small city in which property values are king and which was one of the hottest of the hot spots in the U.S. real-estate bubble.”

“Home prices jumped 150% from 2000 through 2005, according to the National Association of Realtors. But now prices are in something approaching a free-fall. The current readings say they’re down 19% since the end of 2005 and 10% in the past year. Lots of residents who had considered selling their homes during the craziest of the craziness, but didn’t, are wringing their hands.”

“Perhaps the market’s hottest sector during the boom was luxury properties. ‘We were always under priced, compared to Naples and Palm Beach,’ says Michael Saunders, a woman considered one of the doyennes of Southwest Florida real-estate brokers. ‘Then, in ‘04 and ‘05, we outdid ourselves catching up.’”

“But where are all those buyers now? In an attempt to flush them out, SKY Sotheby’s, a luxury real-estate firm associated with the famous art- auction house, decided to capitalize on its heritage. It tried a ’starter auction’ in May, with mixed results.”

“The auction is already the stuff of legend. The place buzzed with anticipation, and there was plenty of food…and a live band, although the selection of ‘There’s Gonna Be a Heartache Tonight’ might have been a little unwise.”

“Of the 79 properties on the sales list, 18 were offered ‘absolute,’ meaning that the seller hadn’t set a reserve price and supposedly would accept any bid. But the median sales price these attracted was less than half of the original asking price. Ouch.”

“Thirty-seven properties were sold ’subject to owner confirmation,’ meaning they didn’t receive bids above their reserve price, and thus maybe sold or maybe didn’t, depending on whether the seller would accept the low-ball bid.”

“What didn’t do well was the mundane. It was a bad day for your typical $2 million Spanish Med. The auctioneers seemed to put the good stuff first, and when the run-of-the-mill came on, well, the crowd was getting tired. The woman sitting next to me was keeping tally — as were many others — and after a while, her DNS (did not sell) list got longer and longer.”

“One person who analyzed the reported sales concluded that, for the properties sold ‘absolute,’ the median sales prices was just 45% of the original asking price, and that 35 properties didn’t even get an acceptable opening bid and so remained unsold at the auction.”

“And, of course, some competing real-estate agents, as steeped in schadenfreude as they are in mortgage rates, quickly came up with a catty saying: If you want to sell your home, call a broker; if you want to give it away, call SKY Sotheby’s.”

“Drawing-broad conclusions about what one auction in one market says about the U.S. luxury-home market is dangerous. But the Sarasota sale certainly said something about the once-torrid Florida luxury-home market…and similar markets around the country. And what it said wasn’t reassuring for those with high-priced property to sell.”

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