The Housing Bubble

The Union Tribune reports from California. “San Diego County median home prices dipped $1,000 from December to January to a four-year-low of $429,000, DataQuick reported Tuesday. Sales activity of 1,826 transactions was the second lowest for any month on record. The overall median was down 17.1 percent from the peak set in November 2005 of $517,500, while the monthly sales count was off 72.4 percent from the monthly peak of 6,605 set in August 2003.”

The New York Times. “An example of the spreading credit crisis is seen in Don Doyle, a computer engineer at Lockheed Martin who makes a six-figure income and had a stellar credit score in 2004, when he refinanced his home in Northern California to take cash out to pay for his daughter’s college tuition.”

“Mr. Doyle is now worried that he will have to file for bankruptcy, because he cannot afford to make the higher variable payments on his mortgage, and he cannot sell his home for more than his $740,000 mortgage.”

“‘The whole plan was to get out’ before his rate reset, he said. ‘Now I am caught. I can’t sell my house. I’m having a hard time refinancing. I’ve avoided bankruptcy for months trying to pull this out of my savings.’”

“Borrowers like Mr. Doyle say they are victims of their circumstances — housing prices collapsed and lending standards tightened just as they needed to sell or refinance.”

“The Doyles took advantage of the housing boom by refinancing their home nearly every year since they bought it in 1995 for $275,000. Until their most recent loan they never had a problem making their payments. They invested much of the money in shares of companies that subsequently went bankrupt.”

“Still, Mr. Doyle does not regret refinancing in 2004. ‘My goal was clear: I wanted to help my daughter go through college,’ he said. ‘It wasn’t like it was for us.’”

The San Francisco. Chronicle. “An analysis of home-price changes in Bay Area ZIP codes to be released Tuesday by www.zillow.com shows a map of the region as a virtual checkerboard of good news and bad news. Foreclosure-heavy, low-income areas such as east Contra Costa and southern Alameda counties had more dismal changes - many ZIPs there show home values down 5 to 10 percent, even more than 20 percent, in the space of a year.”

“The price volatility ‘is a sobering reminder of what’s going on,’ said Stan Humphries, VP of data and analytics for Seattle’s Zillow. ‘It’s pretty dramatic.’”

“For anyone considering selling or withdrawing equity, a lower value translates into immediate, real-world effects. Sue McCullough ‘Zillowed’ her home in Oakland’s Laurel District on Tuesday and was dismayed to see it valued at $417,000 - about a 16 percent drop from a couple of years ago.”

“‘It makes me very much more definite: I’m going to have our open, available line of home-equity (credit) shut down so we can’t get into trouble,’ she said.”

“McCullough and her husband had planned to tap home equity to convert their tumble-down garage into a home recording studio. They got as far as tearing down the garage and then realized that building a new structure would max out their home equity.”

“‘The last few years we used that home-equity line of credit for fun things, like vacations,’ she said. ‘That’s not going to happen anymore. We have not exceeded the value of our home, but I don’t want to go there. That scares me.’”

Bay Area Newsgroup. “The second-largest U.S. mortgage insurer announced Monday it would no longer insure home buyers with less than 10 percent down in California and other ‘distressed markets’ to protect the company from a wave of anticipated losses in the housing market.”

“PMI Group Inc., a Walnut Creek-based corporation, reported it would end underwriting mortgage insurance for those buying homes with less than 10 percent down in California, Florida and most of Arizona and Nevada starting March 1.”

“Spokeswoman Beth Haiken said the new policy may not be permanent. ‘But I also wouldn’t say it’s the last change we would be making,’ she said.”

The Fresno Bee. “A lawsuit filed by investors in the defunct Running Horse golf course and residential development has accused two real estate agents and a title company of illegal activities related to what the lawsuit called a ‘leveraged pyramid scheme’ set up by the original partners behind the project, Tom O’Meara and Scott Webb.”

“The lawsuit, while making allegations against O’Meara, Webb and Running Horse LLC, does not name them as defendants.”

“Instead, the lawsuit accuses Fresno real estate agents Kathy Gee and Linda Ann Ulm of negligence and unjust enrichment in their dealings with those Alameda County investors on behalf of Running Horse LLC. The lawsuit also accuses Stewart Title of California of negligence and misrepresentation in failing to monitor the transaction.”

“James Cai, the San Jose-based attorney bringing the lawsuit, said in a phone interview that his clients’ allegations indicate that O’Meara and Webb were ‘just in the business of taking people’s money and trying to cover up their scheme of developing some fancy golf club that will never materialize.’”

“Cai said he did not name O’Meara and Webb in the suit because both men have filed for bankruptcy protection. But Cai called the two men’s behavior ‘highly questionable.’”

“‘I’m wondering why the district attorney’s office is not involved in this case,’ he said.”

The Bakersfield Californian. “A former Crisp & Cole Real Estate employee who owes more than $4.2 million in outstanding mortgage payments and other unpaid bills has filed for bankruptcy. Zane Richards, a former worker for the defunct real estate firm, filed for Chapter 7 bankruptcy protection seeking forgiveness of a mound of debt, including unpaid property taxes, credit card bills and utilities charges, court records show.”

“One of his lawyers, Fresno-based Carl Faller, said his client’s situation was similar to that of several others who became involved with the Crisp & Cole agency, which is now the subject of a federal investigation.”

“Faller declined to state Richards’ job at Crisp & Cole, but said his situation was ‘basically collateral damages from the business practices Crisp & Cole were engaged in.’”

The Daily Press. “Prices of existing homes in the Victor Valley dropped 9 percent last month and 60 percent of homes sold in January were bank owned — double December’s rate, according to a report.”

“Since January 2007, prices of existing homes have fallen 32 percent, according to figures from the Victor Valley MLS compiled by agent Larry Trombley.”

“‘I really don’t know for sure, but I’m hoping we’re pretty close to the bottom,’ Trombley said. ‘It makes sense for buyers to buy now and the phones are ringing. But we still have a lot of inventory, so I don’t know where it’s going to end.’”

“With the declining prices, one out of 23 Victor Valley homes were sold in January. Industry experts say that’s about a 23-month inventory of homes for sale.”

The Guardian. “In the ballroom of a tourist hotel outside the gates of Los Angeles’ Disneyland resort, some 250 bank-owned properties were sold this weekend in rapid succession. The deals are noisy, no-nonsense and decisive - each takes barely three minutes.”

“For as little as $200,000, bidders were able to snap up three-bedroom homes. Many of those on the block were in the so-called ‘inland empire’- the canyons, creeks and arid semi-desert to the east of downtown Los Angeles where the city’s suburbs have crawled in search of space.”

“John Husing, an economist based in southern California, says 80,000 people were moving east annually in the first half of the decade. Property prices were rising by 8% annually in the Inland Empire and jobs were growing at 3.5% until, quite suddenly, the economy shuddered to a halt.”

“In part, he blames property speculators for the seizure. Lenders compounded the crisis, says Husing, by making ridiculous offers. He cites a copy of a 2006 advertisement which offered: ‘Buy a house - we’ll give you a Maserati.’”

“‘Folks didn’t get it. The public just said ‘I don’t get this’ and they stopped. What I call that is a buyers’ strike,’ he says. ‘It was almost overnight that it stopped.’”

“Checks on documentation were often minimal. The Hispanic community was particularly badly hit. Upwardly mobile immigrants, keen to buy homes of their own, were given loans far beyond their means. The Wall Street Journal recently found a Brazilian babysitter who was approved for a $495,000 loan and a housekeeper, married to a taxi driver, who secured a $713,000 sub-prime mortgage.”

“Not everybody in the property industry is willing to shoulder the blame. Standing on the fringes of the weekend’s auction, some property professionals felt like scapegoats.”

“‘Most buyers in the Hispanic market went to Hispanic mortgage brokers,’ said Jim Lisciandro, an estate agent from the San Fernando valley, who says it is a myth that immigrants were preyed upon because of their poor English. ‘I don’t believe there was miscommunication.’”

“Laura Pinelli, another local broker, is similarly sceptical. She says buyers and lenders share joint responsibility for unrealistic debt.”

“‘In California, people are caught up in materialistic things. It’s not just a vast home. They’ve got to have a flat-screen TV, fancy furniture. The boat, the motor home, the car. They’ve got to make repayments on all these things,’ she says. ‘If you’ve only got a Kmart budget, you ought to go to Kmart.’”

The Desert Sun. “The year-in-review data, to be released by the California Desert Association of Realtors this week, shows the local housing slump that began in the second quarter 2005 only worsened in 2007.”

“The number of homes sold in the Coachella Valley in 2007 fell 21.4 percent compared to 2006. ‘I’ve never seen (sales) plunge this fast,’ said Patrick Veling, president and founder of Real Data Strategies.”

“A total of 5,860 homes were sold in the nine desert cities, Bermuda Dunes and Thousand Palms. That’s roughly 1,600 fewer homes than were sold during 2006. And it’s a 46 percent tumble since 2005.”

“Experts say the first red flags of of the valley’s market problems came with the 2005-06 data: Sales slowed. Prices leveled. It quickly transformed from a seller’s dream to a buyer’s market. It only got worse in 2007, the numbers show.”

“And sellers aren’t budging on prices because they’re not motivated by need as much as their intent to get top price. It’s ‘absolutely opposite’ of traditional housing shifts, says Greg Berkemer, executive VP of the California Desert Association of Realtors.”

“Previous market corrections, triggered by economic recessions started at the top with high-priced homes. Entry-level purchases generally were not affected. This time, ‘the high-end kept selling and the low-end collapsed,’ Berkemer said.”

“That’s a big reason average sales prices have not dipped, and even gone up slightly. But until the sales prices go down, experts say the desert’s large inventory won’t diminish.”

“The valley ended 2007 with 9,186 homes on the market. That is 11.5 percent - or 950 more homes - than at the end of 2006. It’s also about three times greater than the end of 2004 when the housing market was booming.”

“And as more adjustable rate mortgages are about to reset, Veling said ‘one could argue’ that it will be late 2009 to early 2010 ‘before this begins to level off and improve.’”

“Buyers looking at homes under-$500,000 range have very different motivations and economic realities. In recent years, experts say this segment boomed when buyers were lured into the market by sub-prime lending and exotic financing deals.”

“Those have gone by the wayside. And prices for entry-level homes are now ‘out of whack’ with the income of those buyers, says Chapman University economic researcher Esmael Adibi.”

“Experts say sales prices in the Coachella Valley will inevitably drop from the pressure of all the homes on the market. At best, experts say, the desert market could stabilize by the end of 2008. Most say a more realistic timetable for an upswing is 2009 to 2010.”

“‘It will get better,’ said Greg Berkemer, of the California Desert Association of Realtors. ‘But just waiting for that to happen is not where you want to be. It’s always a good time to buy real estate - just not for the same people.’”

Some housing bubble news from Wall Street and Washington. Associated Press, “IndyMac Bancorp Inc. reported the first annual loss in company history Tuesday and scrapped its dividend to shore up capital. The holding company for IndyMac swung to a fourth- quarter loss as weakness in the housing market forced the mortgage lender to boost its loan-loss provisions to account for growing defaults and foreclosures.”

“The company’s credit costs soared to $863 million during the quarter, up from $46 million in the prior-year period. At the close of the quarter, credit reserves for future losses totaled $2.4 billion, up 71 percent from $619 million a year earlier.”

“The Pasadena, Calif.-based company took $179 million in write-offs during the quarter and noted it expects its credit reserves to be sufficient to absorb a ’significant’ increase in charge-offs this year.”

The New York Times. “IndyMac, which describes itself as the second largest independent mortgage lender in the nation, finally suspended its common stock dividend today, three months after it was cut in half.”

“Here’s a headline from a slide: ‘$555 Million Or 90% Of 2007 Net Loss Came From Home Equity, Subprime, Conduit And Builder Construction Lending… All Have Been Discontinued.’”

“I am struck by C.E.O. Michael Perry’s letter to shareholders, in which he tries to deflect blame for the mess his industry is in: ‘All home lenders, including Indymac, were a part of the problem, and, as Indymac’s CEO, I take full responsibility for the mistakes that we made. However, objective reviewers of this mortgage crisis understand that home lenders and mortgage brokers were not the only ones responsible.’”

“‘Systemic problems in our secondary mortgage markets and credit markets, and our government’s over-stimulation of the housing market via monetary and tax policies (the capital gains tax break on home sales encouraged speculation), were all major factors that contributed to the problem.’”

“‘Indymac and most home lenders were not ‘greedy and stupid.’ Most of us believed that innovative home lending served a legitimate economic and social purpose, allowing many US consumers to be able to achieve the American dream of homeownership … and we still do.’”

From Bloomberg. “‘2007 was a terrible year for our industry, for IndyMac and for you, our owners,’ Perry said in the letter to shareholders. The housing slowdown may be ‘the longest and deepest since the Great Depression,’ he said.”

From AFP News. “Swiss banking giant Credit Suisse, Switzerland’s second largest, reported net profit of 8.55 billion Swiss francs (5.34 billion euros, 7.8 billion dollars), even after writing off 3.5 billion euros for the second half of the year.”

“The bank said it had written down another 1.3 billion francs in commercial mortgage-backed assets and leveraged finance in the fourth quarter. Such exposure had already forced it to write down 2.2 billion francs in the three months to September.”

The Pioneer Press. “MoneyGram International is getting a big bailout. An investment group led by private equity firm Thomas H. Lee Partners and Goldman Sachs & Co. will invest $710 million in St. Louis Park-based MoneyGram for an equity stake of about 63 percent.”

“The transaction, the timeline for which has not been set, must first be approved by shareholders.”

“The bailout money will go toward covering losses of more than $1 billion in MoneyGram’s investment portfolio. That portfolio invests money deposited by consumers in the company’s check and money-order business and was heavily weighted in bonds backed by risky subprime mortgages and collateralized debt obligations.”

“In mid-January, total losses in the portfolio stood at about $1 billion. That total is growing as the company continues to sell of assets in the portfolio. MoneyGram incurred another $380 million charge in connection with the sale of $1.8 billion in securities in the portfolio as of Feb. 11, the company said in a press release Tuesday.”

“MoneyGram also said it expects total losses in the portfolio to be less than $1.7 billion. A few weeks ago, the company said losses wouldn’t exceed $1.5 billion.”

“‘Things have deteriorated in the past few weeks since the deal was proposed,’ said Mark Henneman of St. Paul-based Mairs and Power, a large investor in MoneyGram.”

From Reuters. “Moody’s Investors Service on Tuesday slashed its ratings on Standard Chartered’s $7 billion Whistlejacket structured investment vehicle (SIV) after a plan to provide liquidity fell through.”

“Deloitte also said on Tuesday it had been appointed as receiver for the SIV, a step Standard Chartered was forced to take after the vehicle breached triggers that meant it had to be wound down.”

“In a sign of how severe the market pressures on these vehicles have become, Moody’s said Whistlejacket’s capital value — a measure of how much the riskiest debt issued by Whistlejacket is worth — had plummeted to 41 percent from 55 percent in just four trading days between Feb. 6 and Feb. 11.”

“The risk of bond insurers MBIA Inc. and Ambac Financial Group Inc. defaulting rose after billionaire Warren Buffett offered to assume responsibility for $800 billion of municipal debt, excluding subprime-linked securities.”

“‘It’s taking away their cash cow and leaving them with the toxic waste,’ said Tim Backshall, chief strategist at Credit Derivatives Research LLC.”

“The cost of protecting corporate bonds from default reached a record for a third day. Traders speculated credit losses will widen after American International Group Inc. said faulty accounting caused a bigger- than-expected drop in its holdings.”

“AIG, the world’s largest insurer by assets, said auditors found ‘material weakness’ in the way it accounted for credit- default swaps and that the value of its investments fell $4.88 billion, four times more than previously disclosed for October and November.”

“‘We’re in kind of uncharted territory for accountants in a lot of these products,’ said Ricardo Kleinbaum, a credit analyst at BNP Paribas SA in New York. ‘Internally, all financials are grappling with this issue of how to value.’”

“The disclosure stunned Wall Street and raised concern that other companies could report similar problems related to instruments known as credit default swaps. The news sent A.I.G. stock tumbling.”

“‘We are going to see more and more problems come to light like this,’ Lynn E. Turner, a former chief accountant at the Securities and Exchange Commission, told The New York Times. ‘This is an indication that these large financial institutions do not have the risk management systems in place to give us accurate data.’”

The Insurance Journal. “In early November, AIG President and CEO Walter Sullivan told Wall Street that the company could handle its mortgage exposure and that it was ‘highly unlikely’ that AIGFP would be required to make payments with respect to these derivatives.”

“‘While U.S. residential mortgage and credit market conditions adversely affected our results, our active and strong risk management processes helped contain the exposure,’ he said at the time.”

“But according to Fitch Ratings, AIG has ‘relatively large exposure to the current U.S. residential mortgage crisis.’”

“AIG sold credit default swap contracts to holders of collateralized debt obligations, or CDOs. These contracts pay when there are defaults on the underlying debt. Fitch said that AIG had $505 billion in exposure to its credit derivative portfolio in late September, including $62.4 billion of CDOs backed by subprime mortgages.”

“Norway announced new rules on Tuesday restricting retail investor access to complex instruments like structured bonds and immediately drew criticism from across the financial sector. Under the new rules, financial advisers will have to check whether retail clients comprehend the risks of the investments involved.”

“The change comes after four Norwegian municipalities lost millions of dollars on highly-leveraged structured bonds last year due to the U.S. subprime crisis, which stoked a public debate about the ability of non-professional investors to gauge financial risk.”

“‘We presume that it will be very seldom that structured products will fit non-professional investors,’ said Eystein Kleven, a senior official at the financial supervisory authority Kredittilsynet, which published the rules.”

“‘In practice, it will be very difficult for intermediaries to explain how they could sell such products to non-professional investors, especially to households,’ he told Reuters.”

From MarketWatch. “PMI Group Inc. will stop insuring mortgages with high loan-to-value ratios next month as the company adjusts to the U.S. housing crisis, according to a regulatory filing by the company.”

“In its filing on Monday, PMI, one of the largest mortgage insurers, said in the filing that on March 1 it will stop covering home loans with loan-to-value ratios of more than 97%.”

“The nation’s leading mortgage insurer, MGIC Investment Corp., plans to limit its exposure to weaker housing markets by demanding higher credit scores and larger down payments.”

“Starting March 3, the company said it will require at least 5 percent down on homes in so-called restricted markets. They include the entire states of Arizona, California, Florida and Nevada and major metro areas such as Washington, D.C., Detroit, Chicago, Boston and Atlanta.”

“Homeowners hoping to insure condos will have to put down 10 percent.”

“In January, the company instituted other changes to limit coverage of higher risk loans and borrowers with poor credit. The company had said it was limiting business in Florida and California, but the latest announcement greatly expands that.”

“MGIC stopped insuring loans for borrowers with credit scores below 575 last month. It estimates its average FICO credit score for new loans is about 700, out of a possible 850.”

“More than 30 percent of U.S. homeowners who bought in the last two years owe more on their mortgage than their house is currently worth, a housing market research company said on Tuesday.”

“Of home buyers in 2006, 39 percent of those with a median 10 percent down payment now have negative home equity similar to 30 percent of those who purchased in 2007, said online company Zillow in its quarterly home value report.”

“‘With consecutive declines over the past five quarters, we haven’t seen the housing market bottom yet, and it may very well get worse before things get better,’ said Stan Humphries, Zillow VP of data and analytics.”

“‘Even many markets that have been largely insulated from recent declines, like some in the Pacific Northwest, reported notable value declines in the fourth quarter,’ he added.”

“A growing share of home sales are from foreclosures, especially in states hardest hit by the housing bust. In some parts of California lately, nearly 50 percent of home sales come from foreclosed houses.”

“The trend, which is putting additional downward pressure on home prices, is most notable there and in Nevada, Colorado, Tennessee and Michigan, but is also evident in Ohio, Georgia, Florida and Arizona, according to an Associated Press comparison of 2007 sales and foreclosure data.”

“‘There is a real complacency, or an under-appreciation of how bad this is,’ said Ramsey Su, an investor and former real estate broker in San Diego who regularly combs through the local sales database to asses the impact of foreclosure sales.”

“Thomas Blanchard, who sells bank-owned properties in Las Vegas, said the trend has accelerated the past two months, and he estimates that 60 percent of properties on the market there are in foreclosure.”

“‘The only people that you have in our market here in Las Vegas are the people that have to sell,’ Blanchard said.”

“Alejandro Diaz-Bazan, who sells foreclosed properties in Miami, said banks seeking to unload foreclosed properties are looking for buyers that can close deals quickly, and therefore need to have a hefty down payment.”

“‘The bank really is out to move them, to liquidate them,’ Diaz-Bazan said. Despite the downward pressure on prices, he said, ‘property prices in Miami have not dropped enough’ for the market to rebound.”

“Growing scrutiny into subprime mortgages has failed to stop unscrupulous lending practices to blacks, Hispanics and other minority groups, U.S. Rep. Barney Frank said on Monday.”

“Innovation in products and practices must be fostered, but regulation is needed to stem potential abuses, he added.”

“Frank also said it was wrong to turn owning a home into one of Americas’ biggest dreams.”

“‘I wish everyone in America earned enough money and had enough sense to own a home,’ Frank said, adding however that many people are pushed into improperly buying one instead of renting.”

“‘Home ownership is a good thing but Americans also made a great mistake where home was equated to home ownership,’ Frank said.”

The Daily Camera reports from Colorado. “It’s been a little more than two years since Michael Kirby and his wife put their 3,200-square-foot Longmont home on the market, which is listed at $474,000. And Kirby says he doesn’t expect to sell it anytime soon. Although the house’s fixtures are up to date, Kirby says the 33-year-old property can’t compete with newer homes nearby that are similarly priced and come loaded with builder-offered incentives.”

“‘The people who are buying houses can’t sell what they have,’ Kirby says from his second home in Fiesta Key, Fla., citing recent rashes of foreclosures and widespread trouble with subprime lenders. ‘We’re running into that same situation here.’”

“‘That’s happening here, that’s happening in Colorado, that’s happening in California,’ Kirby says. ‘Things in Erie and Frederick are pretty serious.’”

“Jon and Barb Verson purchased their north Boulder home in September 2007, a decision spurred by the impending arrival of their now 3-month-old daughter. The couple refinanced their downtown condominium and bought a two-bedroom fixer-upper in the Sundance neighborhood.”

“Staying in Boulder was important not only because of proximity to his work and open space, but also because of the property’s value, Jon Verson says. ‘It’ll go flat, but it won’t really go down,’ Verson says of the appreciation.”

“Taking into consideration the rates and the housing prices, people who are in a position to buy a home should not sit on the sidelines, says Janie Henry-Bolger, a Realtor in Longmont.”

“The lower prices, Bolger says, should come back up soon. ‘My job as a Realtor is to keep the public positive, and that’s what I’m doing,’ she says. ‘I think we’re all in the position of: ‘If you don’t own, buy. If you do own, re-fi.’”

The Longmont Times Call from Colorado. “It’s been done in California. It’s been done in Florida. And on Saturday, Longmont tried its version of the foreclosure bus tour.” “Russ Scranton of ERA Tradewind Real Estate, which sponsored Saturday’s tour, said he remembered similar trips in the early ’80s. Back then, homes would even be auctioned off during the trip, he said.”

“‘When we saw the trend coming back again … we got together and said, ‘Let’s try it,’ Scranton said.”

“The city had 574 foreclosures recorded in 2007, according to the Boulder County Public Trustee’s office — more than half the foreclosures in Boulder County last year.”

“About 20 people piled on the bus Saturday morning for a 31/2-hour tour that would visit 13 bank-owned homes all over Longmont. East side, west side — no area was immune. The houses ranged from a nearly new $239,900 property down to a $94,500 home in need of a fair amount of work.”

“‘It shows you different levels of income are having the same problem,’ said Johnnie David of ERA Tradewind. ‘It’s not just the ones that flip burgers.’”

The Rocky Mountain News from Colorado. “Home prices fell in the Denver area in January as the sale of distressed properties drove down prices and few McMansions sold. The median price of a single- family home fell about 8 percent, to $216,950 from $236,000.”

“About 80 percent of the homes sold last month were priced at less than $300,000 as the record number of foreclosures drive down the average and median prices, said independent broker Gary Bauer.”

“At the same time, sales are sluggish at the other end of the market. ‘The McMansions, homes priced at $500,000 and above, are not moving right now,’ Bauer said.”

“New housing sales and starts in the Denver area fell by about a third in 2007 from 2006, according to a report. It’s likely that 2007 was the worst year for home builders in the metro area since Denver’s economy crashed in the late 1980s, said John Covert, who heads the Denver office for Metrostudy.”

“‘Basically, last year was the worst year in 20 years,’ Covert said.”

“When the local economy collapsed in the late 1980s following the bust in energy prices, the population of the Denver area was much lower. ‘Our population is so much bigger and more diverse now, it shows how dramatically the builders have cut back,’ Covert said.”

The Arizona Daily Star. “The worst of the slowdown in Southern Arizona’s new-home market is likely still ahead, analysts said an an annual industry forecast on Friday. At best, they said, the market will hit bottom this year.”

“Local new-home market consultant John Strobeck of Bright Future Business Consultants said the number of new-home permits pulled in the Tucson area will fall to 4,000 this year from 5,098 last year. Meanwhile, the number of new homes sold will fall to about 3,500, a drop of 43 percent from 2007 and the lowest number since 1992, Strobeck said.”

“To help spur on sales, he urged local builders to seek ‘continued price reductions’ and encouraged real estate agents to take fewer listings and list ‘only sellers who are serious and have homes priced to sell.’”

“‘Housing activity and prices are falling sharply,’ said Marshall Vest, at the University of Arizona. ‘Not just nationally, but locally, as well.’”

“Phoenix-area housing market consultant R.L. Brown said the economic downturn in 2007 has forced all analysts of the state’s housing market to revise future projections downward. He added that builders and other home-building-related businesses have to be ‘cognizant of the reality of the marketplace that we’re operating in.’”

“‘Many have sat on their hands, wishing that the market would be different, hoping it would be like 2005,’ he said.”

“‘2008 is going to be remembered, I think, as the year we’ll all want to forget,’ Vest said

The Arizona Republic. “Home prices in several Valley cities are falling at rates not seen since 1990, wiping out equity and making it difficult for those trying to refinance.”

“Throughout the Valley, prices on repeat home sales fell 4.6 percent overall from October 2006 through October 2007. That compares with an overall decline of 3.8 percent for September 2006 to September 2007.”

“The decline is the biggest drop in housing prices over a 12-month period since the February 1989 to February 1990 period, when home prices dropped 5.01 percent, during the last real-estate recession.”

“‘It’s not just a matter of too many houses on the market,’ said Karl. L. Guntermann, real-estate professor at W. P. Carey School of Business. ‘It gets into the sub-prime-mortgage problem, affordability, foreclosures, and that has a big impact on people’s ability to refinance if their house prices go down 6 to 8 percent. They may not have any equity, and that may create cascading problems.’”

The Washington Post on Arizona. “‘We’re in so deep that it doesn’t seem like anything will help,’ said Rebekah Ao, a pregnant homemaker who lives in a new four-bedroom home in Avondale with her husband, Otto, a truck driver.”

“The Aos, with $50,000 in income, owe a total of $607,000 on mortgages for two houses they bought since they moved to the Phoenix area about two years ago.”

“In Maricopa County, which encompasses much of the Phoenix area, there are about 13,000 homes in foreclosure, which is more than a sixfold increase over two years ago.”

“They bought their first home in 2005, for $269,000. They paid for it using an Option ARM, which allowed them to make a monthly payment of $850, which was less than what they paid for rent in Los Angeles. Only later did they realize that meant that their loan amount would grow over time, not shrink, as would their payments.”

“‘When we saw the payments were so low we decided to buy another house,’ Rebekah Ao said. ‘With the market going crazy, we figured we could sell the other house in a couple of years.’”

“They now owe $287,000 on the first one and $320,000 on the new home, which they are renting. Their credit card balances, which they once kept at zero, have ballooned to more than $14,000 as they struggle to make ends meet.”

“‘It hurts to know that you are on a road that leads to a dead end,’ Rebekah Ao said. The Aos are weighing their limited options. Foreclosure? A sale that takes in less than they owe? ‘But right now,’ she said, ‘we’re just throwing our money away every month.’”

The Las Vegas Business Press from Nevada. “Amateur night is over and only the pros are going to survive in Las Vegas, real estate observer Richard Lee said last week at Preview Las Vegas 2008.”

“The housing market is in the dumps, partly due to ‘irrational exuberance,’ in the words of former Federal Reserve Chairman Alan Greenspan, which led to an ‘implosion’ of the subprime mortgage market, Lee said.”

“‘The big question is where is the bottom? I don’t know. I think we’re close to the bottom for new homes. We still have a ways to go in resales,’ he said.”

In Business Las Vegas from Nevada. “Lee’s reserved presentation may have been inspired by the speaker who preceded him, Jeremy Aguero, principal of Las Vegas-based Applied Analysis. He, too, had a presentation grounded in reality, acknowledging that economically, 2008 is going to be a tough year.”

“Aguero warned that by the end of the year, there could be more jobs trimmed than created in Nevada. (A day later, it was reported job creation nationally entered negative territory for the first time in four years.)”

“Part of the reason for the potential downturn is a product of the state’s success in diversifying its economy, Aguero said. ‘It’s a double-edge sword. Our economy is more diversified and more susceptible to the ups and downs of the things that are occurring nationally,’ he said. ‘It’s harder for people to grow during a recessionary period.’”

“The construction industry, largely affected by Aguero’s No. 1 trend to watch last year - the slumping housing market - was largely responsible for some of the downturn. Aguero said 11.9 percent of the workforce at the end of last year was in construction-related industries, two times the national average.”

“But another factor was the employment buildup in boom periods such as 2005 and the spending that occurred in those good times.”

“‘A lot of the buildup that we have is a result of huge amounts of unsustainable levels of consumer spending,’ Aguero said. ‘So consumers also are also pulling back. Places like restaurants are overstaffed. It’ll get back, but to imagine that 2005 was by any way sustainable is just unrealistic.’”

The New York Times on Nevada. “Home prices in the North Las Vegas neighborhood of Brenda Harris have fallen 20 percent to 30 percent. The builder who sold her a new three-bedroom home on Pink Flamingos Place for about $392,000 in 2006 is now listing similar properties for $314,000. A larger house a block down from Ms. Harris was recently listed online for $310,000.”

“But Ms. Harris does not want to leave her home. She estimates that she has spent close to $40,000 on her property, about half for a down payment and much of the rest on a deck and landscaping.”

“‘I’m not behind in my payments, but I’m trying to prevent getting behind,’ Ms. Harris said. ‘I don’t want to ruin my credit.’”

“In addition to the declining value of her home, Ms. Harris will soon be hit with a sharply higher house payment. She has an option adjustable-rate mortgage. She is making the minimum monthly payments due on her loan, about $2,400.”

“But she knows she will not be able to pay the $3,400 needed to cover her interest and principal, which she will be required to pay once her loan balance reaches 115 percent of her starting balance. And under the terms of her loan…she would have to pay a prepayment penalty of about $40,000 if she chose to refinance or sell her home before May 2009.”

The Reno Gazette Journal from Nevada. “A flood of foreclosed homes presents prospective home buyers across Northern Nevada with new options the likes of which have never before existed.”

“‘It’s absolutely unprecedented,’ Cheryl Taylor of Ferrari-Lund Real Estate in Reno said of bank-owned dwellings for sale. ‘I have quite a few in the Multiple Listing Service and almost as many waiting for the bank to get a price on.’”

“As of last week, there were 6,492 homes on the MMLS in the greater Reno-Sparks-Carson City-Fernley-Fallon region with an absorption rate of 18.3 months…more than three times longer than at the height of the housing market three years ago.”

“With the number of mortgages in default adding homes to the total, real estate agents like Karen Greathouse of Dickson Realty, who specializes in foreclosures, are feeling the strain.”

“‘The system is overloaded,’ she said. ‘Three years ago, the business didn’t exist in Northern Nevada. You’d get 30, maybe 40 listings a year. Now, the numbers are just staggering. We had a mob frenzy then, everyone was buying just to buy, thinking (the market) wouldn’t do anything but go up. We all know that’s not the case now.’”

“Greathouse said she has foreclosure listings in a wide range of neighborhoods, from Somersett in northwest Reno to Saddlehorn in the south suburban zone to golf course-bordering properties in Dayton.”

“Broker Ken Wiseman said his listings range from $700,000 homes to $70,000 condos. ‘It doesn’t seem like anyone’s immune, except maybe the ultra-rich,’ he said.”

“Residents who have gone through home foreclosures compare the experience to an earthquake, a flash flood or even a death in the family. ‘It’s a nightmare,’ said Shannon Churchwell of Sparks, whose monthly payments on a condo soared from $772 to $1,700 last year as the result of an adjustable rate mortgage.”

“‘I have to take responsibility because I didn’t read the fine print and didn’t fully understand what I was getting into. But it was still a shock. It was a draining and frustrating process to renegotiate the loan, get it modified and get back to where we could afford to stay here,’ she said.”

“Churchwell bought just about two and a half years ago with no money down by using an interest-only loan for a first mortgage and taking out an amortized second mortgage. The loan rate was frozen for two years, but she thought it would be three years before the rate adjusted.”

“‘My first mistake was thinking it was three years, not two, and I also never thought the market was going to change so much,’ she said.”

“But in April 2007 her $772 monthly payment went up by $400 and she realized it was going to go up every six months until her interest rate reached 13 percent. She said she tried to refinance but couldn’t get a deal that kept her payments low. She then put her condo on the market where it sat from May to September.”

“‘A lot of people looked, but I had no offers,’ she said. ‘I went back to the lender, but by then I was paying a mortgage that was close to the value of the condo. I was getting upside down on the loan.’”

“‘The lender kept saying my paperwork was in progress,’ she said. ‘I found out that because I kept up the payments, even though it was a hardship, my paper was put at the bottom of the pile. People who were defaulting were the priority.’”

“‘I was about ready to go into foreclosure,’ she said. ‘I was ready to walk away.’”

“She went to Reno Credit Builders, which was able to negotiate with her lender to get her loan modified. The new loan reverted to the original payment for three years. The adjustable rate still looms beyond that, she said.”

“‘It was worth it to buy time,’ she said. ‘I hope to sell or refinance within those three years.’”

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