The Housing Bubble

The North County Times reports from California. “Homeowners in the new Shady Grove subdivision said Friday they were concerned that their upscale houses will plummet in value if the developer of the neighborhood is allowed to shrink the size of most of the homes that are still in the planning stages. Meanwhile, real estate industry analysts said the decision by KB Home to downsize the Shady Grove houses is just the latest example of a regional trend.”

“Shady Grove resident Mickie St. Pierre said that the 3,285-square-foot home she and her husband bought there cost more than $700,000 last year. After extensive upgrades, she estimated it would now be worth about $1 million, if the market recovered to where it was before the downturn.”

“While it is uncertain what effect the smaller houses would have on the value of existing homes in the development, St. Pierre said she cringes when she thinks about it.”

“‘You’re talking about homes right around the corner that would go for $300,000 or $400,000, so (ours) would probably go down into the $700,000s or $800,000s,’ she said. ‘It’s a huge loss.’”

“Nicole Dennison, president of the Shady Grove Homeowners Association, said she and her husband bought their ‘dream home’ at the hillside development last year, and that they were dismayed by the builder’s plans for plainer, cheaper homes.”

“‘I’d love to see KB Home stick it out and keep offering the original models they advertised,’ Dennison said. ‘I understand that it’s business, but they’ll cut the legs out from under the homeowners. (The owners) will never recoup what they’ve put into these houses.’”

“Alan Nevin, an analyst for real estate tracking firm MarketPointe, said Friday that the Shady Grove case ‘is not isolated at all.’ ‘We’re seeing it throughout Southern California, primarily in areas where the homes that were being built were much larger than the homes throughout the general neighborhood,’ Nevin said.”

“‘The reality is that firms like KB Home will probably wind up building those new (smaller) homes and making little, if any, profit, just to use up the lots,’ said Nevin. ‘In the world of publicly held builders, land is a liability, not an asset, so they try to remove themselves from heavy lot positions, and one of the ways they can do that is by downsizing their homes.’”

“‘Shortly after we moved in, they dropped the price of the homes, and we understood that. It was a hard pill to swallow, but that was the market,’ said St. Pierre. ‘The homes they’re proposing to put in, they’re all just boxes. They don’t have anything to offer as far as character or design.’”

“‘We’d like to see the values of our homes increase when the market increases, and not decrease because of KB Home’s decision to change the demographics of this community,’ she said. ‘We’ve all put a lot of money into our brand new homes —- for most everyone here, the investment is over a million dollars, and to turn more than 60 percent of this community into $300,000 homes … is not right, it’s not fair.’”

The Daily Pilot. “Bettershelter, a Costa Mesa developer dedicated to building affordable housing, opened the 1.7 Ocean condominium complex last summer on the Westside to help revitalize a sometimes blighted area. The first 10 units sold within a few months, but the last two, which are mostly identical to the others, have yet to change hands.”

“Earlier this year, bettershelter owners Steve Jones and Pete Zehnder advertised a ‘Live Free’ package in which residents could purchase the condominiums for $519,000 each and pay nothing for the first six months.”

“That offer got a few interested callers but no buyers — so, this week, bettershelter slashed the price to $499,000 and offered an additional $10,000 incentive for people who purchase the condos before April 15.”

“Zehnder said he suspects many people are waiting for the costs to bottom out. ‘I think they [home buyers] have a tendency to wait a little bit,’ he said. ‘These people are not experts. None of us are experts. But it’s a shame, because there’s really great deals out there and people sit on the sidelines, and by the time they decide to make their decision, everyone else is making a decision already.’”

“Jones, the association’s president, noted that a number of people have capitalized recently on falling home prices, even in such wealthy neighborhoods as Mesa Verde, and that he intended the latest discount at 1.7 Ocean to lure those who still needed an extra incentive.”

“‘That sort of deal would not have existed a year ago,’ Jones said.”

The Desert Sun. “The 48 homes sold last month are more than monthly sales the city (of Indio) has recorded in recent months, according to DataQuick. DataQuick’s analysis of the local housing market also reveals a total of 570 new and resale homes were sold valleywide last month. That’s down 29.6 percent from the same month last year but consistent with the past several months of desert sales.”

“The median price for the valley was $350,000 in February. In Indio, the median was $268,000 - a decline of 27 percent from the year before. The median price per square foot in the city was $156. Valleywide, it was $204.”

“With about 1,100 homes in foreclosure in Cathedral City limits, officials are considering implementing an ordinance requiring abandoned properties to be registered with the city and maintained.”

“The topic has brought Cathedral City’s Code Enforcement staff a barrage of complaints about abandoned homes and swimming pools, according to the report.”

“‘This can’t hurt us,’ Mayor Kathy DeRosa said about the ordinance. ‘I think this can help us to preserve and protect property values (for) those who have been able to keep their homes.’”

“‘This is something that’s going to continue as more properties go into foreclosure,’ Art Gregoire, a Realtor in Cathedral City, said Monday. ‘With the increasing numbers, something has to be done.’”

The Bakersfield Californian. “Leticia Avila’s blood pressure plummeted when she saw what partyers had done to her south Bakersfield home. The scene was all the more shocking to Avila because she had put the home up for sale only about a month before, and was living just a few blocks away when police and neighbors say a large, unruly party broke out at the house.”

“By the time police arrived to break it up, a young man had been beaten unconscious and two others were badly hurt. ‘It can’t continue like this,’ she said.”

“What’s new, local authorities and real estate people say, is that the troubled housing market has widened the selection of empty homes, and so the parties are taking place in nicer, larger homes in more affluent neighborhoods.”

“Other than keeping up lawns, making sure the property is secure and checking up on the home in person or through contacts with neighbors, real estate agents say there is little they can do to keep out partyers.”

“‘Every time I hear it on the news, I have to listen for the address to be sure it’s not one of our properties,’ said Janet Staat-Goedhart, a property manager at Karpe Real Estate.”

“Ultimately the owner of a property — a mortgage lender, in some cases — is responsible for what happens there, including making sure it does not become a nuisance.”

“Avila, owner of the home on Yellow Rose Court, said the efforts to date have been insufficient. Some of her frustration stems from the fact that she and her husband spent $650 and four days cleaning up the house after receiving a written warning from a city code enforcement officer that she had 48 hours to repair the property or face a fine.”

“She thinks the people who attend the parties, or their parents, should be forced to pay for the damage. She also wants the police to do more to catch the trespassers.”

“‘In a while,’ she said, partygoers ‘are going to do bigger things.’”

The Contra Costa Times. “Earlier this year, Eight Orchids was marketed as an upscale, Asian-influenced part of the revitalization of Oakland’s Chinatown. Developed by BayRock Residential, the 157-condominium project, priced the 770- to 1,645-square-feet homes starting at $550,888.”

“Now the developer will start auctioning 41 of those condominiums at $245,000 on Sunday.”

“In the 94607 ZIP code, four new homes sold ranging from a low of $374,000 to a high of $518,000, each most likely condominiums, according to DataQuick. On Trulia.com, a one-bedroom, one-bath resale condominium at Eight Orchids had an asking price of $349,888.”

“‘If these were exceptional properties in an exceptional location they would be selling like hotcakes,’ said DataQuick analyst Andrew LePage. ‘Although not much is selling like hotcakes these days.’”

The Sacramento Bee. “Less than a year ago when the first big foreclosed-home auction came to Sacramento’s Cal Expo, hundreds of bidders registered to buy 107 houses. Now, whenever Irvine auction giant Real Estate Disposition Corp. comes to town, there are almost four times that many.”

“Bidders will have a crack at 397 homes. And that’s just the Sacramento region. In total, more than 1,500 houses in Sacramento, Stockton, Merced, Fresno, San Jose and Oakland will go up for auction in April and early May.”

“That’s not the only distressed home auction in town next month. Auctioneers from Beverly Hills-based Kennedy Wilson will take bids for an Elk Grove condominium conversion project.”

“In November the auctioneer sold 34 units in the project. On April 20, it will sell 36 more in downtown Sacramento. Minimum selling prices at the former apartment complex that converted to condos at the height of the housing boom in 2005 – and priced units as high as $261,000 – are $85,000 to $145,000, says Kennedy Wilson.”

“What’s it all mean for the market? Experts talk about a forest fire clearing out the underbrush so the green grass of a healthier market can reappear. This is the forest fire.”

The Eureka Reporter. “The Humboldt County housing affordability index released by the Humboldt Association of Realtors this week, shows steady gains in the number of local residents who can afford to buy a home.”

“‘The figures just released for January 2008 show the highest percentages since May of 05,’ reported HAR President Tom Hiller.”

“According to an HAR news release, ‘The recent slowdown in the real estate market has created more buying strength for our local market. Those adjustments include steady inventory, softer prices and very good interest rates.’”

The LA Downtown News. “There have been a couple of articles in another publication during the last few weeks that have questioned the viability of the Downtown Los Angeles renaissance and housing market. We think that it is important to get all the facts out there and create a balanced picture of Downtown.”

“The real estate fundamentals of Downtown L.A. are impressive and bode well for our real estate values.”

“Downtown that is no longer a ‘9 to 5′ place…Babies and dogs are being walked by new residents on the streets of all our Downtown neighborhoods, creating a wonderful sense of community.”

“Eight thousand residential units have been built since the Adaptive Reuse Ordinance was passed and another 8,000 are being built now. We have been giving housing tours of Downtown twice every month for the last six years. We continue to be filled to capacity with more than 50 people per tour.”

“Has the market slowed for all of residential real estate during the last year? Yes. Are we doomed to a catastrophic decline in value in Downtown Los Angeles? No.”

“We say that any person who is planning to spend the next five or 10 years in Downtown should consider buying now. Even if the market were to go down in the short term, we are confident that the value will return over time.”

“After all, God has stopped making land in Southern California.”

Readers suggested a topic on current credit trends. “Tightening Credit? Is anyone seeing/feeling this in your area. Some of our local banks are still pushing zero down 100% home loans with a good credit score. Chase is still pushing 0% C.Cards on transfers up to 15 months… 6.9% fixed.Just had that offer last week. COFED Bank of Colorado is sending out a big push for first time home buyers.”

From a lender. “Well, there are loan-peddlers, and then there are lenders. I could shut down my lending window for a number of years, so long as my clientele don’t all simultaneously decide to pay off the principal. Loan-peddling, an occupation even more unproductive than mine, is dying a well-deserved death.”

One had this, “We cut up the last credit card 2.5 years ago, and if I want a TV I have to save up to purchase it. Of course I won’t roll in there and spend 5K on a TV, because when you pay in cash you feel the ‘pain of purchase,’ and suddenly you start thinking things like ‘hmm, I can buy a 1k TV, take a 1K trip, throw 2k in savings for the kids education, and buy new laptops for the whole family for 1K.’”

“Nobody would make those stupid purchases if they made them with cash.”

“The really crazy thing is how would we measure the economy if we didn’t measure it based on ‘public sentiment,’ which is really just how willing people are to go into slavery to Visa for poorly thought out purchases.”

Another has this strategy, “We married with simple, thin wedding bands. (Eloped to boot!) When meeting my add-on family, my SILs asked, ‘Where’s the rock’?”

“I just smiled. Hubby and I were saving for the diamond, and we decided used furniture was a better fit. Yes, we saved for a rock, it’s modest and I actually prefer other jemstones to the ice.”

“We still save and often change our minds on any given designated purchase(s). Saving is addictive. I’ve been able to keep our principle and earn a modest return.”

Another noted, “Was in BofA today. 30 yr. fxd @ 6%. home equity @4.75%. New gimmick started today; seems when an indivdual makes a purchase with a debit card the bank rounds the amount up to the nearest dollar, transfers the difference from checking into savings AND matches the deposits for one year.”

“I asked the teller if the bank is now encouraging saving. He just chuckled. This bank is actually encouraging the use of debit cards.”

One from Georgia. “I saw some income demographics for one of the suburban Atlanta markets that has seen a lot of new home building during the bubble. Most of these new houses are in the $600K range, but quite a few are over $1M. The median household income for this area is $78K.”

“Guess how many people had a household income of $200K or more that could actually afford (using pre bubble 3X income qualifying) that $600K house ? ONE. That’s right, ONE family out of almost 8000 in a 3 mile radius can really afford that new house they bought.”

From Reuters. “Office of Federal Housing Enterprise Oversight director James Lockhart said that government-sponsored enterprises Fannie Mae and Freddie Mac were taking steps that should help keep mortgage rates lower. Regulators eased capital requirements for the two biggest U.S. mortgage finance sources so they can provide more funds for stressed mortgage markets.”

“In response to questions, Lockhart said he supported the idea of consolidating the regulation of Wall Street investment banks and other financial market participants that have come under criticism as credit markets have come near seizing up.”

“‘I think that’s a good idea,’ he said, adding Fannie Mae and Freddie Mac need a strong regulator as they keep growing.”

“One reason they need to be strongly regulated is to prevent the possibility that, should they get in trouble, they could cause problems for the whole financial system.”

“‘Systemic risk is a big issue with these two companies. When you have 76 percent market share in just two companies, obviously they are the system,’ Lockhart said, calling that ‘a key reason’ for legislative action to tighten regulation.”

From MortgageOrb. “The Office of Federal Housing Enterprise Oversight (OFHEO) has transmitted to the Federal Register a final Examination Guidance - Conforming Loan Limit Calculations.”

“The final guidance addresses the handling of decreases in the house price data used to set the conforming loan limit as well as procedural matters relating to calculation of the limit that determines the size of mortgages eligible for purchase by Fannie Mae and Freddie Mac, OFHEO explains.”

“Based on comments received in two public comment periods, OFHEO is issuing a final guidance that provides that the conforming loan limit would not decrease from its current level of $417,000 in 2009 and subsequent years. However, OFHEO adds, the conforming loan limit will not increase until cumulative increases in house prices exceed cumulative decreases since the $417,000 limit was first reached.”

A report from the Virginia Pilot. “For the first two months of this year, the number of Hampton Roads individuals trying to hold onto a home or other major asset by means of a Chapter 13 bankruptcy jumped 84 percent to 373 from slightly more than 200 for the same period last year, according to the U.S. Bankruptcy Court’s Eastern District of Virginia.”

“Jeffrey Flax, a Norfolk attorney who handles personal bankruptcies, witnessed an increasing number of homeowners squeezed by rising costs while their incomes failed to kept pace. ‘Some people got into houses they really couldn’t afford,’ Flax said. ‘Home values have gone down, rather than up,’ and these homeowners ‘are stuck.’”

The News Journal from Delaware. “Delaware real estate agents are scratching their heads about a report that mortgage insurers have marked Kent County as a ‘distressed or declining’ market and have tightened standards for insuring home loans there.”

“‘It’s very confusing,’ said Ann G. Riley, president of Wilmington-based Gilpin Mortgage. ‘We read it and said, ‘That’s news to us.’”

“‘That conjures up a picture of nothing going under contract, nothing selling at all,’ said Cynthia Witt of Woodburn Realty Company in Dover. ‘I don’t see it that way.’”

“Based on the 335 deeds she collected in January and February, the median home price in Kent County so far this year is about $233,000, down from $239,900 in 2007. ‘Based on that, it has gone down a trifle. But the problem with looking at Kent County is the amount of data is so small, you can see some false trends,’ Witt said.”

The Daily Times from Maryland. “The Hagerstown metropolitan area is Maryland’s fastest growing, according to new data from the U.S. Census Bureau. However, Washington County Planning Director Michael Thompson said development has declined since the census analysis.”

“Development peaked in Washington County between 2004 and 2006, by Thompson’s estimation. Census data supports him — from July 2005 to July 2006, the metro area’s growth rate was 2.7 percent.”

“‘We were seeing a lot of people coming up from the metro areas, and they were willing to drive another 40 minutes,’ Thompson said. ‘They came primarily because the cost of housing was so cheap here, and of course the cost of gas wasn’t so high here either at that time. People used to say the mountain was the barrier between us and the metro area, well, all of a sudden that mountain seemed to get flat for a while there.’”

“And while Matthew Mullenax, geographic information systems coordinator at the Berkeley County Planning Commission, said they’ve had a ‘tremendous boom,’ there’s still been a slight slowdown.”

“‘You’ll see a 100-acre subdivision that has only one or two houses built, and all the infrastructure is there — roads, sewer and water, things like that,’ he said. ‘They’re just laying there and waiting for somebody to come by and build a lot or order a house.’”

The New York Times from Maryland. “The foreclosure crisis has been hard on counselors, and some veterans are burning out, said Lisa R. Evans, deputy director of St. Ambrose Housing Aid Center Inc., Baltimore’s oldest nonprofit housing group.”

“‘Volume has doubled or tripled,’ she said. ‘Families in the past were losing their homes because they lost a job or had a medical expense. You could fix that with a couple thousand dollars. But now we have families coming in where the loan is two times the value of the property, and there was never any income, and there’s just nothing you can do for that person. One counselor said, ‘I’m exhausted.’ And the phone keeps ringing.”

“In private, Roy Miller, a nonprofit housing counselor, talks forcefully about the predatory loans he has seen in this neighborhood. But to the class, he took a different tack.”

“‘When people say it’s the banks, or it’s the lenders, or it’s the real estate agents — it’s not their fault. You’re the one who said, ‘I want it,’ he said.’”

The Morning Call from Pennsylvania. “The number of homes sold at sheriff’s sales in Northampton County more than doubled to 99 properties during the first three months of the year, according to the county’s sheriff department, which handles the sales.” “In Lehigh County, 94 homes sold at sheriff’s sale in January, February and March, nearly double the number in 2007.”

“What’s notable about the current mortgage lending crisis is that people of various income levels are entering the foreclosure process. Jack Gross in Bethlehem, who sells foreclosed properties for many banks, said he is handling more homes priced at $200,000 or more than at any other time in the past 15 years.”

“‘Years gone past, the bulk of our inventory was concentrated in center city Allentown, the south side of Bethlehem and downtown Easton,’ Gross said. ‘And that is the not the case anymore. We are more in the suburbs.’”

“‘The person who bought a house with as they say ‘no skin in the game,’ now they owe $250,000 on a house that’s worth no more than $180,000,’ said Bethlehem economist Kamran Afshar.”

“He added, ‘With someone in the neighborhood in foreclosure, it will affect everyone.’”

“Afshar said residents who don’t plan to sell their homes soon will probably not see a big impact. In the short-term, however, he said ‘If there are two houses that are foreclosed, prices of all houses in the neighborhood drop at that moment.’”

“Not long ago, alarmed planners in the Lehigh Valley scurried to figure out how to stop developers from chewing up more than 4 square miles of open space each year. It turns out all they really needed was a good old housing slump.”

“The number of building permits issued in 2007 dropped 45 percent over just two years earlier, while land approved for development decreased by more than 800 acres, or 1.3 square miles, in the same period, according to a Lehigh Valley Planning Commission report to be released today.”

“Bethlehem Township farmer-turned-developer Mark Wagner said he believes some local developers who were riding the housing wave only two years ago won’t make it out of this drought. ‘Guys who built on speculation are in trouble,’ Wagner said. ‘I know guys sitting on 30 or 40 homes they can’t sell. It’s tough to carry that kind of inventory and ride though a drought this long.’”

“Wagner said his own near-death business experience during the last drought prepared him for this one. Like many, he rode a development boom in the late 1980s and began building homes on speculation.”

“But when the so-called ‘New Jersey invasion’ market went sour in 1990, he was stuck with rows of homes he couldn’t sell. The three-year lull nearly ended his burgeoning development career.”

“While 17,348 homes were listed for sale last year in the Valley, only 7,231 sold, according to the Lehigh Valley Association of Realtors.”

The Daily Local from Pennsylvania. “‘Existing home sales are down in the Philadelphia area; we’re in the midst of a significant decline that began in the fall,’ according to Steve Storti, Prudential Fox & Roach senior marketing VP. ‘We’re in the midst of a demand slowdown at the end of a wild ride for home sales.’”

“Broker Bob Hallowell made the point that the local housing market isn’t nearly as bad as in other parts of the country. However, he added, ‘That’s not to say we aren’t down — because we are. Everyone uses 2004, 2005 and 2006 as benchmarks, when during these three years more existing homes sold across the country than at any other time in U.S. history.’”

“Hallowell, whose office sold 80 to 90 houses a month prior to the halcyon days of 2004-2006, sold 120 to 140 a month during those three years. He declined to predict how many units his office is selling per month right now, preferring instead to say, ‘We’re seeing and sensing caution. You just can’t go through the three boom years we had without a correction.’”

“Associate broker Marie Griesser said that in the first three months of 2008, she and her colleagues are seeing lots of people moving up and down in their housing choices. ‘Last year, everyone who bought did so because they had to,’ she said.”

“Said local agent Dyan Nelson Blass, ‘Realistic sellers are the ones selling their homes. Whether you’re in a $300,000 home or one valued at $1 million, you’ll sell your home if you price it right to start with.’”

“Most of the homes that Blass sells today are for 90 percent or more of the asking price.”

“For some, however, there is a silver lining. Keller-Williams’ Blass, for one, is breathing a sigh of relief. ‘It’s not the crazy market we saw three years ago and and I’m glad. I’m no longer going nuts.’”

The Philadelphia Inquirer. “Lily Khalif of Philadelphia is a long-term investor, and she continued to pick up Center City properties during the boom. ‘Prices never went up so much to deter us,’ she said.”

“This is, however, a much better time for long-term investors. ‘I wish we had access to more capital to buy, especially for new construction,’ Khalif said. ‘Builders never have been as willing to negotiate price as they are now.’”

“Alex and Beth Cerrato of Haddonfield waited five years for prices in Ocean City to drop before buying a condo last fall. They found a property that was selling $125,000 below what others were going for in the neighborhood. And by negotiating directly with the seller, they were able to get a house already listed at a bargain $475,000 for $400,000.”

“‘A real estate agent had complained that it was a little smaller than the others, but it’s five houses from the beach, and the owner was a contractor who filled it with top-of-the-line everything, including furniture,’ he said.”

“In turn, the seller, who owned the house outright, put the money down on a house on the beach listed for $1.2 million. ‘I think he got it for $1 million,’ Cerrato said.”

“‘In Ocean City, where there is a lot of unsold inventory, there are plenty of bargains, with prices maybe 20 to 30 percent lower,’ said Jerome DiPentino, owner of Premier Properties in Longport.”

“Second-home sales nationally took a big hit last year as speculators disappeared from the market in the face of tightening credit, the National Association of Realtors reported yesterday.”

“Vacation-home sales dropped 30.6 percent in 2007, to 740,000 from a record 1.07 million in 2006, while sales of investment properties fell 18.1 percent, to 1.35 million last year from 1.65 million in 2006.”

“Investors ‘are being wrung out of the market,’ said Mark Zandi, chief economist of Moody’s Economy.com in West Chester.”

“‘The housing market has gone from boom to bust as the investor frenzy has flamed out,’ he said. ‘Both flippers and long-term investors have fled the market. The long-term investors will eventually come back, but the flippers won’t be back in our lifetime.’”

The Citizens Voice from Pennsylvania. “More than two dozen people will board a bus Sunday in Clarks Summit to stroll through foreclosed houses. The two-hour-plus tour will stop at six vacant houses that banks reclaimed through foreclosures.”

“At least 26 people will tour homes priced between $55,000 and $127,500 and ranging from fixer-uppers to ready-to-occupy. ‘These are people looking for homes to live in or investment properties,’ said Davis, who will host the tour with co-worker Sara Levy. ‘Once they see what’s out there, they are going to want to invest in something.’”

“The tour represents housing and investment opportunities, not commercial capitalization on the misfortunes of people who lost their homes, Farrell said. ‘These are properties the banks want to unload,’ he said. ‘They are lost already. They are gone.’”

“Classic Properties will host another tour April 27 and Farrell expects buyer interest to expand substantially by then. ‘We’re anticipating a 20 percent increase in foreclosed listings by that time,’ said broker/owner Steve Farrell. ‘We’re going to have to get a bigger bus.’”

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