The Housing Bubble

The Used House Salespeople report from California. “Home sales decreased 28.5 percent in February in California compared with the same period a year ago, while the median price of an existing home fell 26.2 percent, C.A.R. reported today. The median price of an existing, single-family detached home in California during February 2008 was $409,240, a 26.2 percent decrease from the revised $554,280 median for February 2007, C.A.R. reported. The February 2008 median price fell 4.8 percent compared with January’s revised $429,790 median price.”

“‘The Federal Reserve Bank’s recent action to reduce the federal funds rate will have little near-term direct effect on the housing market,’ said C.A.R. Chief Economist Leslie Appleton-Young. ‘However, Fed rate cuts should result in more favorable real estate finance rates as we move through the year.’”

“C.A.R.’s Unsold Inventory Index for existing, single-family detached homes in February 2008 was 14.3 months, compared with 8.2 months for the same period a year ago.”

“In a separate report covering more localized statistics generated by C.A.R. and DataQuick Information Systems, 5.4 percent, or 14 out of 257 cities and communities, showed an increase in their respective median home prices from a year ago.”

The Los Angeles Business Journal. “Los Angeles Country saw a 20 percent fall in February’s median home price to $467,200, while sales in the county decreased 42 percent year over year, according to the association.”

The Union Tribune. “Home sales fell 17.9 percent in the San Diego area in February, compared with the same period a year ago, and the median home price fell 24.1 percent to $450,710, according to figures released Monday.”

The Ventura County Star. “Sales of existing single-family detached homes in Ventura County last month plunged 36.9 percent from a year ago, the California Association of Realtors reported today. The median sales price was $520,270 in February, down nearly 11.9 percent from $590,380 in January and 23.6 percent from $680,690 in February 2007.”

The County Sun. “San Bernardino County would be well-served by a proposed property-tax ordinance that aims to lure homeowners from outside the county to move here and buy foreclosed houses.”

“The ordinance, introduced by Supervisors Gary Ovitt and Brad Mizelfelt on behalf of Assessor Bill Postmus, would allow the seller of a home in another county to transfer the property tax bill on that property to a home bought in San Bernardino County.”

“If, that is, the seller is at least 55 or permanently disabled, and the value of the home purchased is not greater than the value of the home sold.”

“Ideally, under the proposed ordinance, retirees who are looking for smaller digs for their golden years - but who wouldn’t move because of the tax consequences - might buy a foreclosed property here to live in.”

“There were about 8,000 foreclosures in the county last year, so plenty of properties are available. Clearly, having a retired couple buy one of them and move in is much better than having it sit empty and untended.”

“Seven of California’s counties, including Los Angeles, Orange, San Diego and Ventura, have adopted ordinances similar to this one, as permitted under Proposition 90, which was passed by California voters two decades ago.”

The Daily Pilot. “When T. K. Brimer bought his new home in Mesa Verde this month, it had signs of trouble all around. The copper plumbing, toilet and mirror had been ripped out, and one room featured expletives spray-painted around the walls, though Brimer couldn’t tell whether that was the work of the previous owners or just a hot-tempered group of vandals.”

“Still, the destruction inside was the only negative part of the purchase, which Brimer made as housing prices in Southern California dropped to near-record lows.”

“The Mesa Verde resident wanted for years to buy a pair of homes to pass on to his grown son and daughter, but with real estate costs soaring, he held onto his checkbook. Last week, with prices plummeting across the region, he closed escrow on a family house in one of Costa Mesa’s choicest neighborhoods.”

“‘I’m in a really good position as a buyer in a market where no one wants to buy,’ said Brimer. ‘I can go out and make good deals.’ Median home prices throughout Costa Mesa were down more than 20% last month from the same month a year ago.”

“Autumn Melstrom, who had been renting a house with her husband as real estate prices surged, plans to close escrow at the end of this month on a Costa Mesa home. The property, she said, appeared on a ‘best buy’ list, and she and her husband were able to meet the offered price.”

“‘Two years ago, we were looking at homes half the size in areas we really didn’t want to live in, but we were forced to look there because it was in our price range,’ Melstrom said. ‘Now, with the market doing what it’s doing, we’re able to find exactly what we want in the area we want. I think it’s give and take, for sure.’”

“According to DataQuick, all of Costa Mesa dropped in median home prices from a year ago, while much of Newport Beach actually increased. However, Gary Legrand, the president of Surterre Properties, said that didn’t mean the average price had gone up.”

“If a particularly expensive home sold in Newport Coast, Balboa Island or one of the city’s other posh neighborhoods, he said, it skewed the median price upward for that area. ‘It’s really per neighborhood,’ Legrand said. ‘Overall, have prices come down a little bit? Absolutely, they have.’”

The Bakersfield Californian. “Two illegal parties, one in a vacant foreclosure house, were busted up by law enforcement Saturday night.”

“A neighbor of the vacant house called Bakersfield Police about 9:50 p.m. concerned by the number of young people flocking to the home. When police showed up, dozens of young people people scattered. Cops were able to nab 11 suspects, citing seven adults — ages 18 to 20 — with trespassing.”

“Officers also seized two untapped kegs of beer, DJ sound equipment, a folding table and hundreds of unused plastic cups. A broken sliding glass door appeared to be how the would-be partyers got into the home.”

Some housing bubble news from Wall Street and Washington. “Existing-home sales…remain 23.8 percent below the 6.60 million-unit level in February 2007. Single-family home sales…are 22.9 percent below 5.80 million-unit level a year ago. Regionally, existing-home sales in the Northeast are 26.4 percent below February 2007. Existing-home sales in the Midwest are 19.5 percent below a year ago. In the South, existing-home sales are 22.0 percent below February 2007. Existing-home sales in the West are 29.2 percent below a year ago.”

“Total housing inventory fell 3.0 percent at the end of February to 4.03 million existing homes available for sale, which represents a 9.6-month supply at the current sales pace.”

From MarketWatch. “The median sales price plunged to $195,900, down 8.2% from a year earlier, the largest price decline recorded since the Realtors began tracking both single-family homes and condos in 1999. Prices of single-family homes fell 8.7% in the past year, also the most since the records began in 1968.”

“Sales of condos are down 29.7% in the past year. Inventories of unsold condos rose 14% to 604,000, a 13-month supply.”

From CNN Money. “The report is a sign that the price environment is weaker than the Realtors’ most recent forecasts. Though NAR chief economist Lawrence Yun said in a release that a ‘notable gain’ in existing home sales is not expected until the second half of 2008, the Realtors’ March forecast called for only a 6.3% decline in housing prices in the first quarter, compared to a year ago.”

“NAR also forecast a median price of $200,500 for the first quarter. Given the current environment, March sales would need a very strong showing, both in median prices and the pace of sales, to reach the Realtors’ forecast.”

The Associated Press. “Yun said that prices in some formerly hot markets in California and Florida were seeing significant price declines now as sellers try to attract buyers.”

“‘We’re not expecting a notable gain in existing-home sales until the second half of this year, but the (February) improvement is another sign that the market is stabilizing,’ Yun said.”

From Reuters. “Fannie Mae, the largest provider of funding for U.S. home mortgages, on Monday said its portfolio edged higher in February while delinquencies jumped in the prior month to more than a decade high.”

“Delinquencies on Fannie Mae’s single-family home financing business rose in January to 1.06 percent, the highest since at least 1997.”

National Mortgage News. “Let’s start with the funeral — no, not the Bear Stearns funeral but we’ll get to that in a minute. This past week the family of Roland Arnall laid the former subprime king to rest in Los Angeles. Attending the funeral were politicians (and former politicians) Arnold Schwarzenegger, Gray Davis, and Antonio Villaraigosa.”

“A former account executive at Argent Mortgage had this to say: ‘Some say he was a wolf in sheep’s clothing or maybe he just turned a blind eye to all the money that was flowing in, and made up for it doing deeds for the greater good of mankind. We may never know.’”

“‘But what is known is the influence he made on the political landscape and to the lives of many of his employees. I felt like I was at a political rally with the amount of politicians that came to pay their respects. You could say there wasn’t a dry eye in the place — but it wasn’t necessarily for passing of ‘The ‘Father of Subprime’ but for our own futures.’”

“The AE told us that he was recently let go by Argent’s new owners, Citigroup.”

“And now for Bear Stearns. Few in the mortgage industry were feeling sorry for the nation’s fourth largest investment banking firm. JPMorgan Chase has agreed to buy the former Wall Street titan. Whether Bear’s bridge playing chairman Jimmy Cayne can pull off a takeover more accretive to shareholders is another matter.”

“This is what one mortgage industry veteran had to say: ‘They started this whole thing with EPDs (early payment default) buybacks. They started a liquidity crisis for lenders and now they’re having a liquidity crisis of their own.’”

“In early 2006 National Mortgage News printed a story about Acoustic Home Loans being shut down because of EPDs and buybacks. Back then we put the story on our front page but not one major newspaper picked it up. Acoustic was the first of many to go under. The investment banker that forced Acoustic to go bust was none other than Bear Stearns.”

The Sault Star. “Is the U.S.-style housing meltdown in Canada’s future? With more and more Canadians taking on record levels of debt to enter the red hot housing market, analysts have begun to see some of the practices that led to the U.S. housing crash last year developing in Canada.”

“The Canadian housing market has seen the price of homes rise between nine and 11 per cent annually for several years. But as last week’s Royal Bank report showing the cost of owning a home in Canada at the highest level since 1990 suggests, it wouldn’t take much of a downturn in the economy for sky-high house prices in Canada to come tumbling down, and the wealth many Canadians had built into their homes vanish.”

“‘Definitely the fundamentals are not great. There are a lot of families who are stretched,” said Roger Sauve, a consultant who last month wrote a report on Canadians’ finances. ”

“The study found that debt had risen to 131 per cent of household income, or $80,000 per household, from 91 per cent in 1990.”

“‘Just like in the U.S., everybody is feeling good right now. They are taking on debt, but they are not worried because the prices of their homes are going up. But it would be easy to see house prices going down five or 10 per cent,’ he said.”

“Liberal MP Garth Turner, a business journalist and author whose recent book ‘Greater Fool: The Troubled Future of Real Estate,’ is among the most pessimistic forecasters of Canada’s housing market.”

“‘We’ve got this delusional situation where the American housing market is going through the worst crisis since the 1930s and we think we’ll continue to buy houses from each other for more and more money,’ Turner said.”

“With 83 per cent of Canadian’s net worth tied to real estate, even such modest reductions could spell disaster for many, he said. ‘We have so many people buying real estate with basically no equity, that even if real-estate flatlines or go down a little bit, that’s a pretty serious situation for them,’ Turner said.”

The Nelson Mail from New Zealand. “A Fairfax Media home affordability report released on Thursday showed the Nelson-Marlborough region had one of the country’s worst rates of home affordability - with 91.9 percent of one median income needed to pay the mortgage on a median priced house purchased in February. The national average is 80.2 of the median income.”

“Nelson Property Investors Association secretary and property manager Glenn Morris said the high interest rates meant some property investors were ‘bleeding to death.’”

“He knew of one client who had to refix an existing mortgage at higher interest rates, and the additional cost meant his income dropped by $100,000. ‘That’s enormous. There must be thousands and thousands of people in that position.’”

“Quotable Valuations spokesman Blue Hancock said anecdotal evidence suggested some investors who had been relying on a property for capital gain, rather than income, were putting their houses on the market. ‘They are trying to lessen what they have got to put in out of their pocket,’ he said.”

“Property investors were being hit hard in the pocket and by the Government. ‘There are some people looking very seriously at why they are being property investors,’ Morris said.”

“It was possible more investors would be selling their properties because they could not afford the added interest costs, he said. ‘Obviously for every seller there is a buyer, we hope.’”

The Guardian. “Home sellers pushed up asking prices for property last month, despite a significant slowdown in the housing market and a lending squeeze by the major banks, according to figures compiled by online estate agents Rightmove.”

“Rightmove said sellers were deluding themselves that buyers were prepared to pay high prices at a time of heightened anxiety. It said sellers were ‘ignoring market reality’ when the credit crunch was already cutting deep into the number of sales and consistently dragging down sale prices.”

“Evidence that Britain’s housing market is heading for a prolonged slowdown has been piling up for months. The snapshot of the market from the Royal Institution of Chartered Surveyors last week showed a near-record number of surveyors reporting falling prices and the most unsold properties for 10 years.”

“Miles Shipside, commercial director of Rightmove, said: ‘Most sellers seem to be ignoring the increased competition from unsold properties and the challenge buyers now face in obtaining a mortgage. Sellers should price below their competition to achieve more interest now and avoid a larger price drop later in the year.’”

From Bloomberg. “The average asking price climbed 0.8 percent in March to 239,655 pounds ($475,000) and they rose 1.3 percent in London, Britain’s most-used property Web site said. While asking prices are less than 1 percent below their record high of 241,642 pounds reached in October last year, sales are being agreed to at around 10 percent less than that, the report said.”

“Mortgage approvals stayed close to the lowest in nine years in January, the Bank of England reported Feb. 29.”

From AFP News. “The United States should use public funds to shore up its financial system and calm recent market turmoil, Japan’s financial services minister said in an interview published Monday.”

“‘It is essential (for the US) to understand that given Japan’s lesson, public fund injection (into the financial sector) is unavoidable,’ Yoshimi Watanabe told the Financial Times.”

“Japan suffered a deep and prolonged banking crisis in the 1990s after the country’s asset bubble burst, leading to the failure of a number of high-profile financial institutions. The Japanese government injected capital to the banking sector in an effort to shore up markets and struggling financial institutions, some of which were nationalised to prevent their collapse.”

“The problems came amid Japan’s ‘lost decade’ of stagnant growth and on-off recession in the 1990s, from which the country is still recovering.”

The Star News reports from North Carolina. “This year’s spring house-hunting season belongs to the buyers. That’s what area real estate agents are saying. Agent Glenda Tate says she is excited about the market from the buyers’ point of view. ‘If you couldn’t afford the house in the location you liked last year, take another look at it,’ said Tate. ‘Maybe you can afford it. If you were looking for a house that cost $325,000 last year…’maybe this year I can get it for $280,000 or $290,000.’”

“James and Angela Parham say that asking prices have come down from their last visit to Wilmington in July. But there still ‘is definitely sticker shock,’ James Parham said.”

“That may be because they are comparing Wilmington not to California, where they did not own, but to Russellville, Ark., where they own a home they must sell.”

“‘I know (sellers) are dealing. The prices have changed from July. There are a lot of foreclosed homes. We’ve looked at foreclosed homes,’ James Parham said. ‘I know people who are in the housing market here and have made offers here and got them for sometimes considerably less than listed.’”

The Citizen Times from North Carolina. “The area’s housing market hasn’t turned around yet, February home sales figures from Buncombe and three nearby counties suggest. ‘We’re still on that downward line. … I don’t see anything (changing) immediately,’ said local real estate analyst Don Davies.”

“Buyers who want to move to the area are staying put because of poor markets back home, and many local residents can’t afford to buy, Davies said.”

“He doesn’t foresee a reversal in the local market ‘until something breaks loose somewhere else. We don’t have the jobs for $450,000 houses. We’ve got to have people come here.’”

“Beth Burdick of Ashford Mortgage Advisors said prices haven’t dropped as much as sales because many homeowners are reluctant to sell in a down market. ‘You have kind of a stalemate between buyers - if they can get a mortgage - making a low-ball offer and sellers holding on,’ she said.”

The Washington Post. “When foreclosure specialist John Thompson looks at a map of Northern Virginia, he sees a flaming archipelago that stretches from Dumfries to Sterling. Parts of Dale City, Woodbridge and Herndon are engulfed; Manassas and Manassas Park are ‘a volcano.’”

“Thompson calls this the ‘ring of fire,’ Northern Virginia’s foreclosure belt.”

“‘That one’s listed at $125,000,’ Thompson said one recent afternoon, sizing up a dowdy green rambler in Manassas Park that had been foreclosed on. It wasn’t the fanciest house on the block, but it wasn’t a shack. Two years ago, homes in the neighborhood were selling for $300,000 to $400,000, Thompson said.”

“On a tour of Manassas and Manassas Park, Thompson pointed to telltale signs of foreclosure: utility notices posted on windows, newspapers yellowing in the driveway, realty signs staked in the lawn. On some blocks, every third or fourth house sat empty.”

“The losses in value have been extreme. A townhouse in Manassas was being offered at $94,900 even though it was assessed at $253,900. Dozens of bank-owned properties were listed for less than $150,000, far below their assessed worth.”

“‘Banks are slashing prices, and that’s causing value of properties to go down with every sale,’ Thompson said, noting that every time a bank unloads a house at a steep discount, it further devalues other houses in the area that it might also own, fueling the downward spiral.”

“‘With the Hispanic community, we had a huge boom in the last few years,’ said Jose L. Galdos, who recently shut down his settlement company in Woodbridge and laid off his staff, having lost 85 percent of his business in the past year.”

“‘A lot of them had adjustable rates,’ he said. ‘A lot of them are walking away from those mortgages now.’”

“Thompson, Galdos and several other real estate specialists in Northern Virginia estimate that 70 to 80 percent of foreclosure cases they see involve Hispanic families. The number of Hispanic surnames in the trustee notices in the classifieds sections of area newspapers appears to confirm the observation.”

“‘What they tried to do was smart. You can’t make it in America unless you get into home ownership,’ Thompson said. ‘But their timing was bad. They bought at the end of the boom. They were pursuing the American dream, and now it’s crashing down around them like an American nightmare.’”

“‘Most of the people I deal with are responsible people who are trying to find a way out,’ Manassas real estate agent Maribel Alvarez said. ‘Some of the banks are willing and do not want to foreclose on a home, but they’re very limited because the homes are so far off what the person owes.’”

“‘What can I do? I’ve got no choice,’ said Jose Ruiz, 27, a landscaper and illegal immigrant from El Salvador who bought a Manassas condo two years ago for $200,000. He has been making $2,000 monthly payments for his mortgage and condo fees since then, spending most of his monthly income and all his savings.”

“He and his wife worry that they’ll be deported or separated from their daughters, ages 3 and 1. But they can’t sell their condo, which Ruiz estimates is worth $130,000 in the current market. So they’re planning to walk away rather than risk a forcible removal.”

The Herald Mail from Maryland. “They are people who earned six figures just two years ago. They are people who could barely afford one house, let alone the two or three they now own.”

“They are people employed by credit-processing companies. They are an area Realtor and others who have worked in that industry. They are truck drivers, retirees, correctional officers. ‘They’ are Washington County residents now living the terror of losing their homes, their good credit ratings, their dignity.”

“In the past 11 1/2 months - April 2007 through this past Monday - alone, 672 foreclosure notices have been filed at the Washington County Courthouse. That’s up 81 percent over the 371 filed in the full 12 months - April through all of March - a year ago.”

“‘There’s a lot of good people, a lot of fine, upstanding people that had good credit and bought an extra house as an investment to resell or as a rental, and ended up seeing it go down,’ said Hagerstown attorney Stephen A. Glessner, who specializes in bankruptcy cases.”

“‘I hear one horror story after another,’ said Alex Bognar, another local attorney who handles bankruptcy cases. ‘It’s terrible. Younger people, who are pursuing the American dream, and they’re in a nightmare now.’”

“It’s quite different from the heady days of 2003, 2004, 2005 and into 2006, when real estate values soared. Buyers, drawn by lenders offering 100 percent financing and loans not even requiring proof of income, flocked to the market.”

“They were buying housing ‘when housing values were rising so quick. They might enter into a contract and buy a house for $200,000 and, by the time they went to settlement, maybe it would appraise for $220,000,’ Glessner said.”

“So the lender would offer the buyer a choice - a fixed loan at, say, 6 percent interest, or an interest-only loan in which the borrower only would have to pay, say, 4 percent interest, Glessner said. Then, the lender would offer the buyer $20,000 cash - for the increase in appraised value - in a home equity loan.”

“‘So what would you do? Which would you take?’ he asked. ‘They should have taken the 6 percent fixed loan. But a lot of these appraisals were really favorable. And people would do that, thinking 4 percent and 20 grand … and low rates are going to stay around forever.’”

“Worse yet, Glessner said, some local borrowers would ‘take the 20 grand and go buy another property. A lot of these people have two properties. Some have three. ‘You’d be surprised the number of people who have two or three real properties….People who have no money down and end up getting a check for 20 grand. Flip real estate, buy real estate,’ he said.”

“‘By the time people are three, four, five months behind in their payments, most have looked at refinancing,’ Glessner said. That’s when they’re discovering the ‘house they bought for $200,000 might be worth $180,000 or less and they have a first and a second mortgage, and now the property’s worth ($180,000) or ($160,000) and there’s no possible way to refinance it … because one, there’s not enough equity, and two, they can’t afford it,’ he said.”

“‘Or their house may have been worth $200,000, and now, it’s worth $150,000 and their mortgage is $180,000,’ Glessner said. The latter is becoming all too common, Bognar said.”

“‘Almost every person I meet with now, the house is not worth as much as their mortgage is,’ he said.”

“Of the 1,381 houses for sale here in February, just 70 sold, according to Metropolitan Regional Information Systems Inc., which tracks sales. Meantime, it said, there were 231 new listings.”

“Many of the people trying to escape loss of their houses are trying to rent them instead - to help pay the mortgage, according to those in the industry. Homeowners lucky enough to land a tenant now are facing an additional difficulty - competition, Glessner said.”

“Of course, they want the rent to cover the mortgage, he said. But with the ‘big glut’ in rentals, if their mortgage is, say, $2,500 a month, they’re lucky to rent it for $1,500, he said.”

“‘But then, their tenants contact them and say, ‘I’m going to rent one down the street for $1,000,’ Glessner said. ‘People are competing against one another to rent.’”

“Small wonder then that Bognar sees a lot of clients who are in almost a state of surrender. ‘Most of my clients are kind of resigned recently to giving up their properties,’ he said.”

“‘Some move out right away because they face reality.’ Some stay in their homes - and stop paying - until the lender forces them out, he said. Bognar said the number of clients facing foreclosure has risen gradually since last summer. Now, he said, he sees ‘maybe a couple’ of new ones every week.”

“Arriving at his office, ‘most of them just want to know information about how things will proceed, and what their options are and how long can they stay in the house. Lot of people want to know, ‘Are they going to give us any notice to get out?’ he said.”

“‘Most people are relieved to know (that) most of the time, if they do file bankruptcy, it’s four, five, six months. … We can actually drag it out for a year maybe. Otherwise, it’s like 30 days or so.’”

The Morning Call from Pennsylvania. “The good ol’ days in the Lehigh Valley included a continuing population surge, soaring housing prices, rampant commercial development and jobs galore. In the historical timeline of economic development in the Valley, the period from 2004 through 2006 will go down as a notable benchmark. It was a bonafide boom.”

“‘That boom is now only viewable in history,’ said local economist Kamran Afshar.”

“Recently, as the nation was slowly veering into recession, the Lehigh Valley economy stepped off a curb and got hit by a bus. Home-price increases slowed to a crawl, and sales tanked. Once-bustling permit offices fell silent, with half as many house-building permits issued in the Lehigh Valley as the January before.”

“Despite slow sales, the average home price had been generally inching upward through January. But in February, the average price fell $12,000 from the year before, to $210,000. That’s the second-lowest average price in two years.”

“Mark Molchany, president of the Realtors association, says he’s still seeing sellers overpricing homes and buyers expecting rock-bottom prices. Those clashing attitudes lead to slower sales, he said.”

“‘If we start pricing houses a little differently, buyers and sellers are going to get together and it will be a good spring,’ he said.”

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