The Housing Bubble

The North County Times reports from California. “Record numbers of Southwest County homes fell into foreclosure in 2007, and the growing stock of bank-owned houses hammered at prices that had already begun to fall from eye-popping highs. Homeowners in Riverside County defaulted on more than 26,000 mortgages between October 2006 and September 2007, with the numbers rising higher in each three-month period, according to one research firm.”

“Banks own nearly 1,900 houses in Southwest County, representing about 28 percent of the houses listed for sale locally, according to one statewide database of foreclosure properties.”

“In the last six months, agents say, those lenders have grown more willing to cut prices to recoup some of the loans they made. That has helped to push the median sale price in Riverside County from more than $430,000 in the summer of 2006 down to less than $360,000, a level most neighborhoods hadn’t seen since late 2004. Lenders are selling hundreds of houses for much less than that.”

“‘If there’s a silver lining, it’s the fact that you can get a single-family home now in the high 200s,’ longtime real estate agent Gene Wunderlich said. ‘That’s hopeful.’”

“Many national and local economists and analysts…think tumbling prices and sales are nowhere near halting. James Welsh, founder of a Carlsbad-based investment firm, said he thinks the housing market might not hit bottom until 2010.”

“‘It’s going to get worse in all areas before it gets better. And now it’s only a question of, ‘Does it get really ugly?’ Welsh said.”

“Home prices in San Diego County have fallen 13.3 percent from their November 2005 peak, according to Standard & Poor’s Case-Shiller Home Price Indices. Low-tier home prices, those selling for under $462,003, fell the most, dropping 18.8 percent over the same time.”

“Throughout San Diego County, the number of homes sold in December through the 27th was down 43.6 percent from last year to 1,109, according to data compiled by Dennis Smith, a Carlsbad-based local real estate agent.”

“Smith said he expects sales numbers to drop an additional 10 percent next year and prices to continue to fall for at least six months from now.”

“‘I think (2008) is going to be a very good year from the buyers’ perspective because they’re going to be able to buy properties at pre-bubble prices,’ Smith said.”

“Realtors said consumers should be most concerned with finding a home that fits their needs. And if they find one, they should buy now since home prices are, at the very least, near the bottom, said Robert Kleinhenz, deputy chief economist for CAR.”

“Phil Bellante, owner of San Diego-based Guardian Mortgage and Realty, said he disagrees with that philosophy because he expects home prices to tumble over the next year and says they could fall for four more years after that.”

“‘A lot of people have talked to me about buying, but I have quite a conscience and tell them, take your time,’ he said. ‘Let’s wait until next year. I don’t want to get you something for $600,000 when I could have gotten it for $480,000.’”

“Diane Goodwin of Oceanside is one property owner who has seen the value of her investments drop to…where they owe more than own, and she used 20 percent to 30 percent down payments.”

“With mortgage payments set to jump in six months, she says she cannot refinance and is asking her lender to freeze her current payments until the market recovers so she can avoid foreclosure.”

“‘It’d be 10 times worse 10 times faster (if we did 100 percent loans). We’d already be in foreclosure with most of these homes if we didn’t have the equity we do now,’ she said.”

“The no-money-down products are still available, but they are getting scarcer every day and could be eliminated over the next year, said Dave Hopkins, a mortgage broker with Encinitas-based Morfacts.”

“‘The banks are really eating it on these mortgage notes,’ Hopkins said.”

“Securing one has proven difficult for Nick Gonzales, 28, who wants to buy his first home, searching mostly in Southwest Riverside County. He said he has above-average credit and solid, verifiable income. Three months into his home search, he has not qualified for any 100 percent loans.”

“In part, Gonzales cannot find a loan because some lenders have designated San Diego as a declining real estate market and applied a 5 percent penalty to all loans for the area. That means a homeowner looking at a 100 percent loan for a $400,000 home would need to put $20,000 down to secure the loan, effectively eliminating all no-money-down programs.”

“‘It’s almost like people who were not responsible for the downfall of the market are being affected by it. We feel like we’re innocent and being held guilty,’ he said.”

“Gonzales, who rents a home in Mira Mesa, said he is only looking at fixed interest rates. He and his fiancee hope to move into a new home before their March wedding and have cut expenses, including Christmas presents, in order to save up for the home.”

“‘Our gifts are our wedding rings and a new home,’ he said.”

The Press Democrat. “Sonoma County’s slumping real estate market should finally hit bottom in late 2008, ending a three-year slide that has already wiped out almost $120,000 in value from the typical home.”

“Home values, which peaked in August 2005 when the median hit $619,000, have already dropped 19 percent. In November, a typical single-family home sold for $500,000 in Sonoma County.”

“Pegging the bottom remains a difficult task for economists, who have underestimated the severity of the county’s housing slump. ‘It was hard to imagine this housing cycle would be as deep as it is. And it’s got a ways to go still. This is big,’ said Steve Cochrane, regional economist for Moody’s Economy.com.”

“A more optimistic outlook from the California Association of Realtors in October will likely be revised downward, said Leslie Appleton-Young, the association’s chief economist.”

“The association’s initial forecast called for a 4 percent drop in prices statewide next year. The declines could be potentially steeper in Sonoma County due to fallout from the subprime loan crisis and because housing here remains costly for first-time buyers.”

“‘There’s more risk on the downside,’ she said. ‘I just don’t know how much lower we can go. It’s close to as bad as it’s ever been.’”

“In Windsor, Ashley Long paid $470,000 earlier this month for a four-bedroom house that was worth $630,000 near the market’s peak. The sellers, which originally listed the home at $525,000, cut the price twice to attract a buyer.”

“A first-time home buyer, Long looked at more than 50 houses over three months, trying to find the nicest house for the lowest price. She didn’t hesitate, however, to make an offer on the Windsor house after Souza spotted the latest price reduction, yet Long still went under the seller’s amount.”

“‘I got a pretty good deal. I know this is a low market and the house is worth more than that,’ Long said.”

“To lower her monthly mortgage payment, Long made a 10 percent down payment to lock in a low interest rate on a 30-year loan.”

“‘It’s the only time I’m going to be able to afford to buy in Sonoma County,’ she said. ‘I can’t imagine it going down a lot lower, and eventually it has to come back up. I don’t want to gamble.’”

The LA Times. “The California Assn. of Realtors and the research firm DataQuick both reported last month that November home sales and prices slipped in the state from year-earlier levels.”

“The state realty organization had reported a 36% drop in statewide sales from the previous November, and a 12% year-to-year price drop. In Southern California, November sales fell 43% from the previous year and prices dropped 10% according to DataQuick.”

“DataQuick also reported a slight October-to-November sales pickup in Southern California. But DataQuick President Marshall Prentice cautioned that a single-month increase may not be significant: In 1994, November sales also rose from the previous month, but sales and price then resumed their declines in following months.”

“Despite the upbeat National Assn. of Realtors assessment, other economists continued to predict further weakening of the housing market.”

“Robert Shiller, a Yale economist who co-founded the widely cited Case-Shiller index of housing prices, said in an interview with the Times of London that housing prices in California and Florida could fall 35%. ‘There is a good chance this housing recession will go on for years,’ the newspaper reported Monday.”

“Los Angeles economist Christopher Thornberg, principal of Beacon Economics, has predicted a 30% drop in Southern California home prices from their peak. Of the latest national figures, he said: ‘What I want to know is: How many of those are foreclosures? That’s not stabilization; that’s the market getting worse.’”

The County Sun. “Some real estate agents in the Inland Empire stinging from the housing meltdown may have a new tact to drum up business, and help out homeowners: self-help seminars. Bill Ruh, government affairs director of San Dimas-based Citrus Valley Association of Realtors, said it’s encouraging to hear Realtors getting involved in these seminars as home sales have dried up.”

“One San Bernardino-based Realtor, Karmel Roe, said she can’t count the number of times she’s caught wind of homeowners being foreclosed on. Roe says it pains her to hear about it and that’s why her company, Sweet Dreams Realty Inc., is starting a free once-a-month seminar on overcoming financial obstacles to home ownership.”

“‘Everywhere I turn, someone is telling me that someone else is losing their house,’ she said. ‘My hopes are that by the end of the year we’ll end up helping thousands of people.’”

The Palo Alto Daily News. “With a wave of mortgage trouble sweeping the country, Martin Eichner’s agency has its hands full. Eichner is director of a non-profit organization that educates people about housing rights.”

“In all of 2006, the group’s Sunnyvale office, which provides mortgage counseling to residents of Santa Clara, San Mateo, Alameda and Stanislaus counties, got one or two calls a week from people seeking advice, Eichner said.”

“Now it’s getting two or three calls a day. ‘Right now,’ Eichner said, ‘we’re drowning in these calls.’”

“Sometimes, Eichner said, clients don’t call until they are ‘upside down’ - owe a bank more than the property is worth. At that point, there is little an adviser can do, he said. Eichner said most Peninsula residents who have been calling about mortgage problems are from places where home values are lower, such as parts of Redwood City and East Palo Alto.”

The Fresno Bee. “Central California’s housing slump is in its second year, and the slowdown is nowhere more apparent than in the number of new subdivisions being created. Since 2005, the number of applications filed for new home tracts in Fresno has declined by two-thirds. There were 81 applications that year, compared with 27 in 2007.”

“The number of lots in those tracts has dropped proportionately. The 2005 applications proposed 8,572 lots, compared with 3,029 in 2007. Builders are also delaying work on previously approved tracts…totaling 600 homes in once-active areas of southeast and west-central Fresno.”

“‘On paper, we’ve got a lot of lots that are capable of being built,’ said city development director Nick Yovino, who estimates the number of lots already approved at ’several thousand.’”

“Michael Prandini, president and chief executive officer of the Building Industry Association of the San Joaquin Valley, said the slowdown in tract map applications and the recent extension requests is no surprise in a down market.”

“Getting lots approved and bringing them to market takes money. Builders don’t want to spend that money any sooner than necessary to keep pace with prospective sales. ‘That’s typical in times like these,’ he said. ‘The maps they have, they’re not prepared to move forward on.’”

The Merced Sun Star. “Two years ago, Atwater Ranch was the most controversial housing project proposed in the city. Now, the 379 acres where the project was once set to prosper is just one more piece of land for sale.”

“Real estate agent Andy Krotik began hawking the $22 million swath of land just as Florsheim Land Co. announced that it no longer would develop the site because of the housing market’s slump. With no signs of improvement, it wasn’t a good business move, a spokesman said, though the company had already spent thousands on the project.”

“The subdivision south of Highway 99 was expected to add 4,500 homes to the city.”

The Sun Herald reports from Mississippi. “According to data from the MLS, which keeps track of homes for sale, home prices have risen more than 16 percent, from an August 2005 average $148,885 to $178,000 in August 2007. Some of that increase, said local Realtor Cheryl High, was because of labor and supply shortages. But some of it was wishful thinking.”

“‘We hit a price range where it was not uncommon for a seller to add $30,000 to $40,000. We were asking premium prices,’ she said. ‘We went too high too fast.’”

“Since then she’s seen builders knocking as much as $50,000 off the price of a home and has received an offer of $90,000 less than the asking price for one of her listings.”

“MLS data reported in April 2007, there were 814 homes on the market and only 293 sold. August 2007 had 846 homes on the market and 315 sold, in contrast with December 2005, with 475 houses for sale and 401 sold.”

“After Hurricane Katrina, there was a sharp increase in home sales, mostly to investors who planned to resell them, said Realtor Arlene Wall, but that ended quickly.”

“Joe McVey has had a higher-priced home on the market for about two years, a reflection, he said, of the national trend. Katrina drove away families with no local roots, but higher incomes. The people who remained can’t afford his listings.”

“‘The people who moved took their money with them,’ he said.”

“And though he thinks some buyers are perhaps subconsciously holding out for prices to dip lower, he thinks the dam will break once houses start selling again. He’s looking for that break as early as January, but probably in the later spring.”

“‘I think it’s going to be like a volcano going off,’ he said. ‘Maybe that’s wishful thinking on my part.’”

From City Business in Louisiana. “A $25-million residential redevelopment of the historic Sara Mayo Hospital in the Irish Channel has been put on hold indefinitely. ‘Based on the existing economic conditions and the status of the current mortgage market we feel it is premature to start construction at this time,’ said Sue Shelton, executive VP of Today Realty Advisors Inc., which bought the hospital in the spring of 2006.”

“The Dallas real estate company, which initially forecast the costly conversion would be complete in March 2008, is reviewing its plan to convert the 135,000-square-foot abandoned property into 78 condominiums ‘to be sure it is the most effective use of the (site),’ Shelton said.”

“The stalled development comes as a blow to neighborhood residents who have been waiting eagerly for progress at the vacant hospital site with overgrown shrubs and grass.”

“‘It looks like a place where anything could happen, and not necessarily good things,’ said Richard Hebert, who in 2001 bought a home near the hospital.”

“Land values in the Irish Channel rose when the city demolished the St. Thomas public housing development in 2000 to make way for River Garden. Following the demolition of St. Thomas, housing in the area was selling at unprecedented prices in the range of $350 to $500 a square foot, said Realtor Isabel Reynolds.”

“Values surged again following Hurricane Katrina when the city announced plans to redevelop 6 miles of land along the Mississippi River between Jackson Avenue and the Industrial Canal into a tourist-friendly attraction that would include parks, shops, cafes and cultural centers, Reynolds said.”

“‘There is a lot of (housing) supply out there and there are a lot of new choices coming on the market,’ said Lower Garden District builder Robert, who recently completed an 11-unit luxury condo building in the Lower Garden District and is in pre-construction phases for the three-story building at 625 Celeste St. as well a a $17-million, eight-story luxury condominium and a larger, mixed-use building at 1667 Tchoupitoulas St.”

“Keeping prices low to appeal to a wider market of buyers will be important for developers in transitioning areas such as the Irish Channel, he said.”

“‘The supply issue is coming down to what you are willing to sell at,’ said Armbruster.”

The Times Picayune from Louisiana. “The supply of houses and condominiums for sale right now in greater New Orleans is more than double what it was at the close of 2004 and 2005, a trend that brokers say is shaped as much by the national real estate slump as it is by the lapse in consumer confidence that followed Hurricane Katrina.”

“Buyers are out there, but brokers say they can afford to be choosy because of the profusion of homes on the market. Sellers, especially those with high-end real estate, have had to compromise on price after watching their homes idle without an offer for a few months.”

“Brokers say it is the affluent homeowners who have experienced the most disappointment about what their homes will fetch in a turgid market.”

“Larry Saunders put his home in Metairie up for sale this year for $755,000, slightly less than what he believes it was worth before the storm. Katrina damaged the outside of the house and pushed water into the back two rooms, but Saunders finished the repairs before he went hunting for a buyer.”

“The home languished on the market for six months until Saunders found a new real estate agent who encouraged him to dial back his asking price. He sold the house within 30 days — for $551,000.”

“Saunders moved his family to Nashville after the storm, and he said he accepted an offer far below his original price because it was costing him to maintain the house and swimming pool in Metairie even as he paid a mortgage on the new house in Tennessee.”

“‘It was unfortunate to have to accept such a dramatic reduction in value, but that’s just the reality,’ Saunders said. ‘For homes at the high end of the price range, values have fallen significantly over the last two years because of the lack of new buyers entering the market and the excess supply.’”

“Michael Riley also had to stomach a lower selling price for his home in Old Metairie after he could not find a buyer for six months. A lot of potential buyers came through his house on Cedar Drive, but he found that no one would make an offer unless they believed they had found a real bargain.”

“‘There are a lot of houses that have been up for sale for a long time,’ Riley said. ‘If you want to move your house, you have to make it very price-attractive. I know a lot of people are reluctant to reduce the price of their house because they keep thinking in terms of what it was worth before Katrina.’”

The Record Chronicle from Texas. “Mike Ferguson flipped through a booklet of foreclosed homes. As he patiently waited for a foreclosure auction to begin, Ferguson reviewed the dozens of homes that he had highlighted, scribbled next to or marked.”

“By 10 a.m., Denton County’s foreclosure auction started, and within an hour, nearly all of the properties listed in the book had been sold — most back to the bank. Ferguson’s business was the only buyer that was not a bank to place a winning bid on a property.”

“The number of foreclosed homes posted for the New Year’s Day sale at the Denton County Courthouse reflected a 17 percent increase over January 2006 and was the highest January increase in a 10-county region. The question, foreclosure service officials say, is whether the foreclosure numbers posted for January could have been higher.”

“Denton County posted a record 450 residential foreclosures in November. In December, 447 foreclosure notices were filed. In a report released Dec. 13, a total of 392 residential foreclosures were posted for the January auction.”

“Lenders in a 10-county region posted 3,672 area homes for foreclosure in January, according to the Foreclosure Listing Service report — the biggest total yet for January foreclosure auctions in the Dallas-Fort Worth region and 30 percent more than for the same month in 2006.”

“Almost 43,000 homes in the region were posted for foreclosure in 2007 — a record, up 10 percent from 2006.” “The annual numbers for 2007 show several hotspots in the county hit harder than others, including Krum and Prosper and some developments along U.S. Highway 380.”

The Journal Record from Oklahoma. “Tulsa-area home sales fell 11.2 percent in November, the Greater Tulsa Association of Realtors reported Monday.”

“Oklahoma State University economist Suzette Barta’s report observed strength in Oklahoma’s real estate loan market…although she recorded declining activity. These factors support Barta’s contention that while the national housing market is enduring a serious slump, Oklahoma’s housing market could better be described as sluggish.”

“While housing starts have declined 6.1 percent in Oklahoma, she said, that pales against the 24.5-percent drop seen nationwide. She projected statewide construction employment would rise 0.6 percent next year, fueled by demand in Oklahoma City.”

“‘Actual home prices are not expected to fall,’ she said, ‘and neither is construction employment.’”

“Tulsa apartment complex sales plunged 40.4 percent in 2007 to $191 million, according to a report by broker Darla Knight.”

“Analysts through 2007 had projected the start of several construction projects, although some in the multifamily sector have suggested the credit crunch could curtail some expansion plans. While long-term financing remains available, Knight said some deals had faced a temporary squeeze from sub-prime lending problems.”

“While most economic studies point to slowing job growth in the Tulsa area this year, Knight said that follows a similar pattern seen in 2007.”

“‘While we’re modest, we’re still far above the rest of the nation,’ Knight said. ‘And then we had Forbes putting us in the top 10 places to live. That is encouraging.’”

The Canton Repository reports from Ohio. “Several Stark County residents featured in two Repository articles about home sales were in discouraging predicaments last spring. All were able to extricate themselves from their situations. But for the home sellers, it came at a price. Tim Manning put his former Lawrence Township home on the market in August 2006 at $174,900. After lowering the price numerous times and hitting other snags, he finally sold the house.”

“But he had to make payments on both that and his newly built Tuscarawas Township home until that happened. ‘We thought, ‘Oh my, we’re not going to get rid of this house,’ recalled Manning. ‘We’re going to be stuck with two homes. We went through hell to sell that house,’ said Manning.”

“Nancy and George Niarchos put their two-bedroom Jackson Township condo, bought for $137,900 in 2003, on the market in November 2006. The move came as they bought a larger single-family home elsewhere in the township. The couple, who asked for $139,000 for the Villages of London Square condo, didn’t receive an offer for nine months and considered selling it through an auction.”

“In the end, an elderly woman moving here from Florida bought the home for $123,600 in August.”

“‘We took it for less than what we paid for it, which was disheartening,’ said Nancy Niarchos. ‘We hadn’t had any offers. … we both looked at each other and said we have to sell this condo to this lady.’”

The Beacon News from Illinois. “Bettye DeRamus, the director of Aurora-based Consumer Credit Counseling Services, had more resources and repayment programs to offer her clients in 2007 after mounting foreclosures nationwide became impossible for lenders and government agencies to ignore.”

“Foreclosure proceedings filed in Kane and Kendall counties, which jumped to 1,600 in 2006 after hovering around 1,000 for years, approached an unthinkable 2,700 in 2007.”

“Only about a quarter of foreclosure proceedings in this area tend to end with the home being auctioned off in court. But even homeowners who escape that fate must skimp on necessities, declare bankruptcy or struggle for years to escape a mountain of debt.”

“Most of the homes affected by the mortgage crisis were sold between three and five years ago. Around that time, lenders began courting people with lower incomes and spottier credit histories. They competed to offer sub-prime loans that offered borrowers artificially low monthly payments for the first several years.”

“In the Fox Valley, where developers were building homes at least as fast as residents could move into them, lenders were only too eager to follow that trend. Over the past two years, as area homeowners have started reaching the end of the low-payment period, they have seen their payments skyrocket. DeRamus says she has watched some clients’ bills double, from $500 to $1,000 a month.”

“‘From Big Rock to Burlington to Sleepy Hollow, no area doesn’t have a foreclosure,’ said Lt. Tom Bumgarner of the Kane County Sheriff’s Department, whose coworkers are stretched thin monitoring the resulting paperwork. ‘There’s no town or village in the county that hasn’t been touched by this.’”

The Chicago Tribune from Illinois. “The vultures are circling. In an abrupt reversal, the commercial property industry that started 2007 giddy about its prospects enters 2008 facing falling property values, a seized-up credit market and concerns a slowing economy could dampen future leasing and rental rates.”

“The downtown Chicago leasing market faces 6 million square feet of new offices in development that will start coming online in 2009. Also, some older office buildings that had been eyed for conversion into residential condominiums may remain in the office supply.”

“‘It seems pretty obvious now that many buyers will have problems meeting pro forma [rent and income] projections and that there was too much optimism in these deals,’ said David Funk, director of the Cornell University Program in Real Estate.”

“In Chicago, office building sale prices fell 17 percent in the fall compared with the spring. Last month, only two properties sold for a total of $91 million, compared with a year earlier when 16 properties sold for $2.3 billion. Nationwide, the dollar volume of sales is off about 55 percent, reported Real Capital Analytics.”

“‘Commercial property performance always comes down to jobs,’ said Jeff Samaras, an executive VP at real estate firm Cushman & Wakefield Illinois Inc. ‘If the economy gets into a mess, all bets are off.’”

“The new year could bring a new reality for landlords and investors, said Christopher Carroll, managing director of a Chicago-based financial-services firm. ‘No one can bet on selling a building for a higher price unless they have a plan to create value through sound operations,’ Carroll said.”

“‘In 2008, I expect to see [lenders] repricing properties on a grand scale, saying you can have this at 30 or 40 cents on the dollar’ for certain buildings in some markets, said Carroll.”

The Fond du Lac Reporter from Wisconsin. “More and more Fond du Lac residents are losing homes as foreclosure rates increase across the nation. The Fond du Lac County Sheriff’s Department has recorded 210 foreclosures so far this year. That’s up 54 from the 166 foreclosures in 2006 and more than double the 99 foreclosures recorded in 2003.”

“‘I have never seen foreclosures on a daily basis like this before,’ said Len Bacon, owner of Century 21 Fox Valley in Fond du Lac.”

“Bacon, who has been tracking local real estate for more than 20 years, said the increasing number of foreclosures is not related to the nationwide mortgage crisis or subprime lending.”

“Many foreclosures are the result of buyers taking on too much debt, becoming overextended and not being able to make their payments, Bacon said.”

“Bacon said many homeowners borrowed too much, often more than the value of their home. ‘It’s difficult for the average American to turn down what appears to be a gift horse,’ he said.”

The Small Business Times from Wisconsin. “There is finally national concern in the news today about rising foreclosures in the housing market. Unfortunately, this is last year’s news.”

“I wrote about the rise in residential foreclosures in December 2006 and touched upon it again in January 2007. Most of the national business news channels hadn’t really featured this until late in 2007. Why’s this suddenly an issue? It has been an issue for more than a year for many people.”

“Will there be a lot of new houses and condos for sale at bargain-basement prices? Don’t count on that. Builders will take less money, sure, but they won’t give houses away. As for condos, some buildings will become apartments until the market bounces back. This is happening already.”

“There is one house north of Racine, in a small suburb called Wind Point on Lake Michigan that was foreclosed. The bank or the real estate agent thought they could get a huge return on it. They put it on the market for $595,000 more than a year ago. Though it wasn’t worth it, they thought it would command that price because it was in an affluent neighborhood.”

“The taxes on the property just went up several thousand dollars. The assessor thinks it’s worth a lot. That house is now $410,000 without one serious offer on it. Looking at it more than a year ago, I said it should sell close to what the mortgage is on it. That would be somewhere in the upper $300,000s.”

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