The Housing Bubble

Please post items of interest from outside the US here.

The Sacramento Bee reports from California. “Sacramento home builders have tried practically everything to move product in a slow market: lower prices, auctions, luxurious upgrades and so on. Now they’re offering cheap money. Working in tandem with lenders, two home builders are offering mortgage financing for new homes at below-market rates. ‘The builders are clearing brush,’ said John Schleimer of Roseville-based consultant Market Perspectives. ‘The big push certainly right now is to get rid of standing inventory.’”

“John Arvanitis, a Citrus Heights mortgage broker, said interest-rate buydowns are preferable to continued price reductions, which drive down market values for everyone in the community. ‘You don’t want to perpetuate (or) assist in a market crash,’ said Arvanitis.”

“Elk Grove, already mired in an economic slump, may be at the forefront of what’s coming to the entire Sacramento region. Already home foreclosures there are up fivefold. Unemployment has climbed. Laguna Ridge – a big new master-planned development – is largely a ghost town of unsold homes and vacant lots.”

“And with the region’s unemployment rate rising, homeowners aren’t the only people struggling. ‘We’re doing our best to stay open,’ said Chris Correa, co-owner of a long-standing brewpub. ‘There used to be a housing boom, a lot of new people, a lot of new money moving in here. Now people’s houses are losing equity. People are incurring debt and they’re just not coming out to restaurants.’”

“The flood of Bay Area refugees to Elk Grove drove housing prices skyward and generated a mad rush to build homes, schools and shopping centers. The downturn calls into question just how strong the boom really was. They were wealthy on paper but chronically short of cash.”

“Preparing to expand, the Sacramento Natural Foods Co-op looked at demographic studies of Elk Grove and saw nothing but high incomes. But when the Co-op opened in the Elk Grove Marketplace on Bond Road, it found many residents weren’t so rich after all.”

“‘A lot of these 70,000 new residents down there were young families with mortgages up to their eyeballs,’ said general manager Paul Cultrera. ‘The disposable income wasn’t there. … It’s tied up in mortgages and new furniture.’”

“The slowdown is most obvious in the Laguna Ridge development, also known as Madeira. It was going to be Elk Grove’s hottest new community, with 8,000 homes by 2009. The downturn has made a joke of that timetable.”

“Much of the 1,900-acre site is a vast plain of unbuilt lots. Only 229 houses have been sold since the development opened 18 months ago, according to the Gregory Group.”

“Anna Starr, owner of the Yarn Shoppe on Laguna Boulevard, has watched three of the 11 tenants disappear from her shopping center over the past year. ‘Three vacancies in our little tiny shopping center – that hurts a little bit,’ Starr said.”

“Starr, who took out a second mortgage to buy inventory, is afraid of being overextended. ‘You’ve got your house tied to it, your livelihood,’ she said. ‘I’m curious to see how the summer’s going to play out for us if the economy continues to slump. I think my summer’s going to be hard.’”

The Record Searchlight. “Homes sales in Shasta County in 2007 reached a 10-year low while the median price fell 4.3 percent from 2006. DataQuick reported the 2,108 homes that sold in Shasta County last year were the fewest since 1997, when 2,078 escrows closed.”

“‘When you look at 1997 as the point … there were a lot fewer houses on the market then, so it’s really much more meaningful … it’s noteworthy,’ Redding real estate agent Glen Jones said of 2007’s numbers.”

“Doug Eaton of Guild Mortgage in Redding said he’s had his busiest week in about a year. But his clients are refinancing out of adjustable-rate mortgages. The buyers haven’t come out.”

“‘I think they are waiting for prices to drop further,’ Eaton said.”

The San Francisco Chronicle. “Across the country, task forces of prosecutors, FBI agents, securities investigators, class-action lawyers and others are mobilizing to figure out who broke the law during the high-flying days when lenders were handing out mortgage money like drunken sailors.”

“California, with its spiraling property values and history of loosey-goosey lending, is one of 10 ‘hot spots’ nationwide where mortgage fraud proliferates, the FBI said.”

“One Oakland woman, who asked not to be identified, explained how she exaggerated her income - with encouragement from her mortgage broker - when she refinanced her home.”

“‘He didn’t say anything illegal out loud,’ she said. ‘He didn’t say ‘lie,’ he just made a strong suggestion. He said, ‘If you made $60,000, we could get you into the lowest interest level of this loan; did you make that much?’ I said, ‘Um, yes, about that much.’”

“He went clickety clack on his computer and said, ‘Are you sure you don’t remember any more income, like alimony or consultancies, because if you made $80,000, we could get you into a better loan with a lower interest rate and no prepayment penalty.’ It was such a big differential that I felt like I had to lie, I’m lying already so what the heck. I said, ‘Come to think of it, you’re right, I did have another job that I forgot about.’”

“One Bay Area man who worked as an account executive at several subprime lenders said he witnessed mortgage brokers who blatantly falsified information on loan applications.”

“‘I had a broker open a drawer full of blank W-2s and pay stubs while he told me he could get me whatever I needed’ in terms of ‘proving’ borrower’s income, the man said.”

The North County Times. “Several banks issued statements this week saying they were temporarily suspending withdrawals from open home equity lines out of concern that borrowers could owe more than the house is worth…even on people who are current on their mortgage payments.”

“‘It’s an emotional hardship,’ said Patti Lien of Menifee. ‘We kept our credit good. We’ve done everything right, and this is what we get because Countrywide made all these crappy loans.’”

“Countrywide Financial announced Thursday that it has cut off 122,000 borrowers from pulling any more equity out of their homes. Wells Fargo, Washington Mutual and JPMorgan Chase released statements Friday saying they have also started halting equity lines because of tumbling home values.”

“‘It really wreaked havoc for me,’ said Dan Holbrook, a Fallbrook homeowner. At the end of the year, Holbrook paid off his equity line with a $50,000 payment. Four days later, Bank of America froze his equity line, he said.”

“‘I’m scrambling right now,’ he said. ‘It has created a tremendous amount of stress because that was money to live on for me.’”

“Holbrook, a real estate consultant, said most people view such loans as emergency-only money. That is how he viewed it until the housing market slowed, he said. ‘A lot of people figured these equity lines were safety nets,’ he said. ‘The problem is many of us are on a high-wire act right now. And you think the net is there, and you fall and it’s not.’”

“The banks’ reactions follow a 17-month drop in San Diego County home values, according to a Standard and Poor’s report. Riverside County has also seen falling home values, with some areas losing almost half their value, said Phillip A. Bellante, owner of a San Diego mortgage broker.”

“‘I can show you areas in Murrieta and Riverside that have gone down 40 percent,’ he said. ‘And is it going to go down more? Yeah, it is.’”

“In the midst of a severe countywide housing downturn, Carlsbad stands out as a city where many homes have retained their value and have actually appreciated.”

“But even with strong median prices, the coastal city has seen some sales at a loss of 15 percent or more in value over the last three years. ‘You’re getting some very localized markets within Carlsbad that are getting nailed and some others are doing fine,’ said Norm Miller, a real estate professor with the University of San Diego Burnham-Moores Center for Real Estate.”

“The median price for 92011 was $872,000 in 2007, practically identical to the 2006 median price. But of 71 homes sold in that ZIP code in 2007 that had previously sold in 2004 or later, 30 have lost value, according to data from the county’s MLS.”

“One buyer who is convinced of Carlsbad’s relative strength in the housing market is Sonjia Kurzepa, who plans to retire there when she moves from her current home in Denver. She recently purchased her soon-to-be primary residence in Aviara.”

“But she said she knows San Diego County is working through a housing depression and that some homes in the beach community will continue to lose its value, but not hers.”

“Kurzepa, a long-time real estate investor, owns homes in Nevada and Florida, two states that have joined California in leading the nation in home-price declines. She said none of her homes has lost value.”

The Union Tribune. “Seven affordably priced homes being built on Wisconsin Avenue are almost finished, but few qualified buyers have applied to buy one. Even though interest in the affordable homes is high, few people have submitted the necessary paperwork.”

“Eighteen applications are in and less than half are expected to qualify for the two-and three-bedroom townhomes, said Claire Carpenter, CEO of the community development corporation.”

“‘It’s a great opportunity for good people to find good-quality homes in a market that almost precludes this kind of opportunity,’ Carpenter said.”

“The townhomes are 1,150 square feet and 1,310 square feet. Each has 2-½ bathrooms and a one-vehicle carport. The purchase price is expected to be $389,000 to $419,000. Buyers must meet income restrictions set by the federal government.”

“David Cooksy, the city’s director of housing and redevelopment, said it’s a tough time to sell homes even if the price is subsidized. The slowdown in the housing market and economic uncertainty led to a drop in the expected sale price, which last year was $450,000.”

“The city was planning to choose buyers by lottery in March, but there may not be a lottery if more people don’t apply and qualify.”

The Orange County Register. “About 5,000 people, many of them looking for real estate bargains, filled a hall at the Anaheim Convention Center on Saturday for an auction of foreclosed homes.”

“Julie Finaldi of Corona and her husband picked up a two-bedroom, 900-square-foot house in Riverside with a winning bid of $150,000. Under the auction rules, a 5 percent ‘buyer’s premium’ was added to the bid, resulting in a sale price of $157,500.”

“Finaldi, a Realtor, figures the house needs about $20,000 to $30,000 worth of renovations, much of which her husband can do. They intend to rent the house out for $1,200 or $1,300 a month.”

“‘I’m so excited,’ she said. ‘We’ve been trying to get one for a while.’”

“Mark Vachani was bidding on a house in Irvine’s Northpark neighborhood. The three-bedroom home was recently listed by a broker at $959,900. Bidding opened Saturday at $449,000.”

“The auctioneer launched into a rapid-fire solicitation. Bids escalated quickly. Men in tuxedos raced through the crowd, screaming or waving brightly colored batons when they spotted a bidder.”

“As the price rose above $700,000, Vachani dropped out. The winning bid was $860,000.”

“Winning bidders were escorted to a curtained-off area to arrange financing with mortgage lenders and sign escrow paperwork. More than a few of them either backed out or failed to qualify for financing, so the homes went back for rebidding.”

“The Northpark house was auctioned again within about 20 minutes. This time it went for $820,000. The second winning bidder also failed to close the deal, so the house came up a third time.”

“‘I’ll go to 700, maybe 750 – that’s it,’ Vachani said. He went to $775,000. The winning bid was $810,000.”

“While bids came fast at the front of the hall, the back rows were filled with folks who were mostly just watching. Frank Gasparovic of Cypress was hoping for a house in Orange County or Corona for about $200,000.”

“‘I’m not really serious,’ said the school district maintenance worker.”

The Miami Herald reports from Florida. “The nation’s largest home-loan lender, Countrywide, told its brokers in a memo last week to immediately raise the down payment required for all loans made in the tricounty area by 5 percent. For a median-priced $362,500 home in Miami-Dade County, this requirement means buyers have to cough up an additional $18,125 to obtain a home loan.”

“Countrywide and other lenders’ directives likely come in response to new lending guidelines from government-sponsored mortgage giant Fannie Mae that took effect Jan. 15. Others like Chase and Citibank, brokers say, enacted similar policies months ago.”

“For Coral Gables investor Efrain Osorio, desperate to sell three condos bought in 2005, the trend spells more bad news.”

“‘I’m not going to be able to find buyers for my properties,’ Osorio said, adding he had dropped the price of one condo in South Miami from $347,000 to $299,000 in recent months. ‘We haven’t even gotten an offer, so how are people going to finance that property?’”

“But Ralph Peña Jr., a Miami-based appraiser who has been watching values drop, said banks are now just behaving responsibly.”

“‘Was it fair when they gave borrowers 120 percent’ of the sale price? Peña asked. ‘No one was putting any money down, so they could walk away and let the property go into foreclosure.’”

The Naples News. “They signed for homes costing hundreds of thousands of dollars two years ago, and then the market went bust. Now…buyers who signed contracts for pre-construction condos and homes in the booming market are suing developers under a federal statute to avoid closing and to get their deposits back.”

“Others are just walking away from the deposits, usually about 20 percent of the purchase price.”

“‘Buyers want out … because the economy is bad,’ said Richard Inglis, a lawyer (in) Fort Myers, who has handled many such cases. ‘It’s hard to think about buying a second home if you’re laid off or if your economic situation has changed substantially, … especially in Southwest Florida where we’re selling make-believe and sunshine.’”

“‘Two and a half years ago, it was just the opposite,’ Inglis said. ‘It was developers trying to get out of deals and stiffing customers because they wanted to sell (the homes) for more. It’s so incredible what a sea change there has been.’”

From WBBH-TV. “It is early in the year for such a high number of foreclosures and Jeff Tumbarello, of the Real Estate Investors Association, says the group never saw it coming. ‘I don’t think the legal system was ever prepared to do this many foreclosures,’ said Tumbarello.”

“Of those 1,833 foreclosed homes, not every house had a family in it. In fact, only three of every 10 foreclosed homes were owner-occupied. Most belonged to what Tumbarello calls ’speculators.’ He says most speculators never even made a payment.”

“‘The delinquencies are really coming down, but what’s left is getting through the people that have quit paying,’ said Tumbarello.”

“For example, we found on Cape Coral house that neighbors say has been sitting empty for years and the bank just recently foreclosed on it.”

“‘Southwest Florida is affordable again. We were always affordable and we’re back to that. It’s quite affordable to live in the North Cape now,’ said Tumbarello.”

The News Press. “Foreclosures in Lee County surged in January to a record 1,833 - and some home buyers are reaping the benefits as banks increasingly put the foreclosed houses back on the market at fire sale prices. The foreclosures in January eclipsed the previous record of 1,538 set in October.”

“‘I’m smiling all over,’ said Diane Keene, who just bought a three-bedroom, two-bath foreclosed house with a pool in Cape Coral for $135,000.” “But as lenders sell the houses they’ve taken back, experts say prices are likely to plunge even further after a long slide dating to January 2006.”

“Keene’s agent, Christine Million, said the bank sales are going fast because they’re realistically priced - lenders want to dispose of the houses and are willing to take what the market will bear. That’s not always true of individual sellers who still hope for the lofty prices of two years ago.”

“‘You’ve got 300 properties in a category and only the lowest three or five are getting any action,’ she said. ‘What are the guys at the top of the market even doing there?’”

“Cape Coral real estate agent John Valdespino saw the housing crash coming in 2006. He got out while the getting was good. Valdespino went through a 10-week ‘boot camp’ training program to become an Embarq telephone system installer. He now works for the company in Naples.”

”People were buying $500,000 homes in middle-class neighborhoods, that doesn’t add up to me,’ he said. ‘I said, ‘This isn’t going to keep going.’ I said, ‘You know, before all these other out-of-work Realtors jump, I’ll beat them to the punch.’”

“He’s not alone. The number of Realtors in Lee County dropped 16 percent in the last year, from 5,157 to 3,959 members of the Realtors Association of Greater Fort Myers and the Beach, Lee County’s largest association.”

“And it’s down 28 percent from the record 5,993 two years ago, when median price of a single-family home shot up 47 percent in a year’s time and real estate was a burgeoning profession.”

“Elizabeth Casella came here with her husband 16 months ago, after Hurricane Katrina clobbered her real estate brokerage in New Orleans. But Casella soon realized the market wasn’t the vibrant one that had existed even a few months earlier.”

“‘I went for an interview with a real estate agency and I was there 40 minutes,’ she said. ‘The phone didn’t ring. I asked them about it and they said, ‘It’s a slow day.’ I said ‘A slow day means it rings every four minutes.’”

“As a result, Casella stopped the process of transferring her license and is now pondering her options.”

“Gordon Koschtial, an agent in North Fort Myers, came here from Detroit and got his license in ’05, just at the peak of the market. He also started Odyssey Homes, which is finishing up some partly-built homes for financial institutions.”

“But after that, Koschtial said, there’s likely little work for him here. Home permits are at a crawl: Only 57 were issued countywide in December. If nothing else comes along, he said, ‘I’m heading back to Michigan in five or six months to a job that’s waiting for me.’”

“There’s no sense in waiting for the market to come back. ‘I’ll be dead and broke by the time that ever happens,’ Koschtial said.”

The St Petersburg Times. “Supersized Tampa Bay area houses are going on a steady diet. Decades of gigantism in housing sizes have struck head-on the reality of the housing slump.”

“Builders are doing what used to be unthinkable: They’re shrinking home square footage and cutting amenities for the first time in decades. ‘People are rethinking whether they need an indoor swimming pool in the bathroom,’ said Joe Narkiewicz, executive director of the Tampa Bay Builders Association.”

“Such streamlining is happening with a vengeance at KB Home, which is returning to its roots as a provider of homes for first-time buyers. After inching up to 2,200 square feet in 2006, KB’s average home size in Tampa has shrunk to 1,800.”

“The company even reintroduced two-bedroom houses scaled not much larger than apartments at 1,033 square feet. Such downsizing allows the builder to offer attention-grabbing prices ’starting from the 130s’. ‘It’s really helped us get to a price point people can afford,’ spokeswoman Cara Kane said.”

“The size reductions stem from a confluence of two factors. Locked into pricey land deals negotiated in many cases during the housing boom, builders can’t chop prices much more without going broke. At the same time, buyers can’t get the big-money mortgages they once could.”

“‘Many, many builders sold at a loss last year,’ said Marvin Rose, who’s monthly newsletter Rose Residential Report is required reading for the area’s top builders. ‘They’re cutting each other’s throats to get a sale.’”

The Pensacola News Journal. “In concept, Bob Montgomery’s plan for a downtown condominium on East Gregory Street has a lot going for it. Beautiful view of Pensacola Bay? Check. Convenient to downtown restaurants and entertainment? Check.”

“Right time to sell it? Not so much. ‘Two years earlier, it would have been done and gone,’ Montgomery said.”

“Investors who once jumped into a lively housing market are now waiting for prices to bottom out and inventory to diminish. ‘You just have to wait,’ Montgomery said, adding he has shelved at least three strong local projects.”

“There are nearly 6,800 homes listed for sale in the Pensacola Bay Area, not including for-sale-by-owner homes. Before the local housing market improves enough to make way for projects planned by Montgomery and others, that inventory must come down.”

The Times Union. “It was supposed to be the ‘forever home,’ as Kelly Estes called it. The 3,600-square-foot, five-bedroom, three-bathroom, two-story model in St. Johns County would be the nest for the stay-at-home mother of two and her husband to grow the family.”

“But now the dream is an empty lot. A returned check. And yet another snapshot of the nation’s slumping housing market.”

“The home was to be among 350 single-family units and 100 townhomes in a neighborhood in Ponte Vedra Beach’s massive Nocatee development. Centex Homes, which was building the village, confirmed rumors Friday that the company is pulling out of Northeast Florida.”

“‘We, as an organization, looked at Northeast Florida and determined it’s not a community we need to invest in,’ said division sales manager Brian Martin. ‘It’s a market thing.’”

“At first, Estes said she thought she was getting a good deal. She said she talked the price of her Willowcove home down $120,000 to about $446,000. When she found out Centex was ceasing Northeast Florida operations, she said her jitters about the economy became worse. She asked for her $5,500 partial deposit back.”

“‘We were fortunate in that we had not broken ground yet,’ Estes said. ‘We thought it would be a risky proposition to build. We didn’t want to wind up living in a ghost town.’”

“St. Johns County Commissioner Ben Rich said he doubts Centex’s decision will take any pressure off the county’s housing debate. County officials have been criticized for poor planning and over-permitting.”

“‘Depending on who you talk to, we have anywhere between 64,000 and 70,000 homes approved for construction,’ Rich said. ‘This won’t really give any relief.’”

What do you see in your housing market this weekend? Speculation? “For the first time ever, condominium prices in key areas across the GTA rose faster than those for single family homes in 2007, a Mississauga-based real estate firm says.”

“‘Condominiums are clearly a viable alternative to single-detached housing,’ says Michael Polzler, president of RE/MAX Ontario-Atlantic Canada. ‘With so many purchasers forced to compromise on their choice of housing, the ever-growing return on investment in the condominium market is proving to be quite the consolation prize.’”

“The condo surge isn’t expected to lag anytime soon, according to Polzler. ‘When it comes to bricks and mortar, homeownership can be cost-prohibitive,’ he says. ‘The surge in condominium sales and prices is a glimpse at the future. Not only is the condo lifestyle more widely accepted, it is also highly coveted by many.’”

“Just two of 13 residential projects proposed for the Central Business District in the 29 months since Hurricane Katrina have been scrapped. The condo real estate market, however, has slowed considerably, experts say.”

“‘The dynamics are different than they were three years ago,’ said Shaun Talbot, VP of Talbot Realty Group. ‘We didn’t get the population growth that we were thinking that we would get. You can’t propose something in a marginal location and expect (the same number) of buyers.’”

“‘There was such a rush for condos after the storm because so many people were living (in condos) while they rebuilt,’ said Garden District broker Joan Winchell. ‘That rush is not there right now and people see that the rush is not there right now and they are stepping back.’”

“‘Developments will still be able to succeed,’ Talbott said. ‘But in order to succeed, it’s time to cater to people who live here.”

“There’s an almost eerie quiet on the streets of the unfinished subdivisions in Shelby County’s northeastern suburbs, where new home construction permits for 2007 fell by more than 50 percent in some areas.”

“The drop in permit applications in part reflect a flailing real estate market, some city officials in Bartlett, Lakeland and Arlington said, as well as indicate the large number of houses already built.”

“‘You can drive through any of these subdivisions, not only in Arlington. I drove through them in Lakeland and Bartlett and there’s just not any activity,’ said Ed Haley, Arlington town superintendent.”

Lending changes? “Many of the country’s largest mortgage lenders are imposing loan restrictions in entire counties or ZIP codes that they rank as risky or ‘declining.’”

“In late January, a ZIP code for McLean, Va., which is a high- income, high-cost community and home of mortgage investment giant Freddie Mac, was rated a high-risk D. Ironically, restrictions imposed by Fannie Mae late last year have prompted lenders to compile area-by-area risk ratings and impose downpayment penalties.”

“Ted Grose, president of Los Angeles-based 1st Mortgage Advisors Inc., said labeling entire counties as ‘declining’ is ‘ridiculous. It totally fails to distinguish between areas where prices are rising or relatively stable, and other neighborhoods or communities where they are not.’”

Pessimistic oneupmanship? “Beazer Homes said Friday it would no longer build homes in Columbia, Charlotte and three other markets. The company also said it would no longer originate mortgages.”

“Metts Construction of Irmo filed a Chapter 11 reorganization petition in U.S. Bankruptcy Court in Columbia in early January. ‘We’re in a recession, and the construction market in South Carolina led the way into the recession,’ said said Barbara Barton, a Columbia lawyer who represents Metts.

“The chairman of Fort Worth-based D.R. Horton home builder warned Thursday that the sharp downtown in housing sales nationwide is expected to continue in 2008.”

“Donald R. Horton told company shareholders at their annual meeting that 2008 is going to be more difficult than 2007. ‘The home-building industry is not in a recession,’ he said. ‘It’s in a depression.’”

Or new marketing? “In 2006, according to the MLS, there were 38 new homes sold on Long Beach Island and in 2007 64 properties closed. There are currently 78 active new-construction properties included in the county’s listings, said Tom Wissel, MLS administrator with the Ocean County Board of Realtors.”

“In 2006, 26 new homes were sold in Stafford Township but just 18 in 2007, according to Wissel. There are currently 62 new homes in Stafford Township for sale in the MLS listings.”

“‘In 2003 we were selling between a low of 220 to a high of 450 properties a month,’ Wissel said. ‘In 2007 we had 3,500 properties available per month and were selling under 300 a month.’”

“‘Last year … was a very tough year when Kara Homes went bankrupt and then K. Hovnanian homes had trouble. The statistics for Ocean County on a whole have been fairly weak or anemic compared to earlier years,’ Wissel said.”

“Wissel said that many builders are so eager to move the homes that they are offering additional amenities. ‘I saw one open house that was advertising that for two hours only they would take something like $10,000 off the price. It’s a funny kind of incentive and it reminded me of something that you would see at Kmart on a Black Friday,’ Wissel said.”

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