The Housing Bubble

Business Edge reports on Montana. “When Eric Watson first saw the unique chalets at Slopeside on Big Mountain in Whitefish, Montana, he thought they would appeal to companies that want to host retreats for employees and clients. ‘It’s Aspen living at Montana proportions,’ says Eric Watson, managing director of Calgary-based Ultimate Properties International, which is marketing the homes. ‘You get a lot more for your money.’”

“The 12 units, which range in price from $1.5-$1.9 million, feature four bedrooms, en-suite bathrooms, large kitchens and stone fireplaces in an open floor plan. ‘In Colorado or even Wyoming, these units would be anywhere from $3 million-$6 million,’ says Watson.”

The Whitefish Pilot from Montana. “A local real estate appraiser says Whitefish’s home-sales market has so far been insulated from problems sweeping the nation because the area is ‘maturing’ into a resort real estate market similar to Sun Valley, Idaho, and Jackson Hole, Wyo.”

“John Woods has been a professional in the real estate industry for more than 25 years, working as an appraiser for the past 15. He’s been in Whitefish since 1992. Recently he prepared a sales activity report for Whitefish’s residential real estate market since 2004.”

“While 2005 and 2006 were big years for sales of condos and townhomes, average sales prices slightly decreased. Then sales dropped nearly 38 percent last year, he reports. Vacant land sales also have sharply decreased — down nearly 30 percent from 2006 to 2007 and down by almost half since 2005.”

“Woods, who lived in Ketchum, Idaho, in the late 1980s and witnessed its transformation into what he calls a ‘mature’ resort community, said Whitefish is following a similar path. Homes that sold for $300,000 to $800,000 in 1990 now sell for $2 million to $8 million.”

“Hailey, Idaho, about 15 miles away, became a bedroom community for the resort town’s workforce. But small homes that sold in Hailey for $150,000 to $250,000 in 1990 now sell on average for $350,000. Some sell for $1 million.”

“‘Only about 13 percent of Whitefish home sales are over $1 million today,’ he said. ‘In the mature, competing markets, the total reverse is true — a small percentage is less than $1 million. So if Whitefish does mature as a resort real estate market, where will real estate prices be in 8-12 years?’”

The Daily Interlake from Montana. “Flathead County’s first-quarter housing starts are down 44 percent from last year and are down 53 percent from the 2004-07 average. The shrinking number of housing starts is part of a three-year trend in the Flathead.”

“In spite of the current downturn, Flathead leads the state with 100 housing starts in the first three months of 2008. Nearly all of the state’s most populous counties posted declines in housing starts ranging from 20 percent to 48 percent.”

“Separate numbers for Kalispell weren’t available, but senior planner Sean Conrad said the building department hasn’t been as inundated as it has been in the past. ‘Houses are going up, but definitely not as quick,’ Conrad said. ‘We’re down from previous years, but we’re still way up.’”

“Local builders are feeling the crunch. ‘There is definitely a slowdown happening,’ said Merna Terry of Ron Terry Construction. ‘It’s a tough one.’”

“‘A lot of builders have stopped building spec homes,’ she said. ‘There will be less homes on the market, and that will create more demand. It’s a buyer’s market. Prices are down; interest rates are low. People are going to get a good deal right now. But it’s going to change, though.’”

“Terry said the Flathead home-building situation has been affected by the national economy, the national media and a longer winter here in the valley. ‘People are a little bit afraid and thinking if they wait they’ll get a better deal,’ Terry said.”

“‘It’s definitely been slower this year,’ said Laura Gardner of the Flathead Onestop Workforce Center. ‘We probably had one of our slowest winters in quite a few years. Our hope is that it’s going to pick up and do well. Time will tell.’”

“Sliverbrook Estates recently received final plat approval for 107 lots on the first 73-acre segment, which means the lots are available for immediate construction. Lot prices start at $129,000.”

“Developer Howard Mann, who was a developer in Las Vegas, said the housing-market woes sweeping the nation have not hit the Flathead as severely.” “‘Las Vegas, Phoenix and Florida have been decimated,’ he said. ‘People in Las Vegas were buying homes so fast the builders jacked up the prices and it got to an unsustainable level. Something had to happen. When the price of a house doubles in five years, you know something is wrong.’”

The News Tribune from Washington. “Facing fewer buyers and many, many homes for sale, South Sound builders are pulling back and getting extra promotional. Builders have slowed construction schedules in recent months, cut prices, offered their biggest-ever incentives and even rented out finished homes that couldn’t find a buyer.”

“Sales of new homes for the first three months of the year are down 45.3 percent in Pierce County compared to the same period in 2007, and compared to a 36 percent drop for all home sales in the county, according to Northwest MLS.”

“New-construction offerings, however, have also shrunk, with such homes comprising 18.5 percent of what was for sale in Pierce County last month, compared to 24.7 percent the same month the year before.”

“Still, builders are looking to unload even more of what’s built and empty. In March, 1,485 new homes, excluding condos, were listed for sale.”

“It used to be that half of the homes sold by Soundbuilt, one of the area’s largest builders, were properties with homes either under construction or yet to be built, said Gary Racca, owner of the Puyallup company. Uncertainty about the economy, however, means consumers are holding off, and now 90 percent of the company’s sales are on ready-to-move-in homes.”

“The company has launched a first-time promotion: a price guarantee, which allows someone to buy a not-yet-constructed home at a locked-in price and ensures that if Soundbuilt lowers prices on other similar houses in the subdivision, the buyer will get the same discount. ‘We didn’t do that six months ago. We didn’t do that three months ago,’ he said.”

“There have been some price drops locally to entice buyers and clear out inventory. In the past six months, Soundbuilt has sliced as much as $30,000 off prices on homes in Pierce County, Racca said. ‘We dropped them so low to get the momentum, and now the momentum’s back,’ Racca said.”

“Jerry Mahan, an agent who is also a developer and builder, said the new-home market was oversold in the South Sound. Market adjustment includes lower prices, but on a time-limited basis, he said. Nine months ago, Mahan’s construction company had 60 homes for sale. Now it has about 10.”

“‘On these next 10 houses I’ll give some good pricing. But after that, my prices go back up,’ he said. ‘Every time there’s a slow market, a stronger one follows. There’s only so much land.’”

“Bennett Homes is building about 30 percent of what it expected to be putting up at two Gig Harbor projects, Harbor Crossing and Chelsea Park, said Gayl Van Natter, the company’s VP of sales and marketing. It’s also holding off on four other projects for which it owns land in the harbor area.”

“Chelsea Park’s grand opening takes place this weekend; Harbor Crossing, an urban village concept near the new Costco and YMCA, went on sale in September. While she declined to say how many have sold, Van Natter said the response has been ‘very disappointing.’”

“‘The industry as a whole right now is severely depressed, and all of us who are building now bought at absolute top dollar, so what that means is we have to price accordingly,’ she said.” “Harbor Crossing homes start in the mid-$400,000s; Chelsea Park prices are in the high-$600,000s and up.”

“But building slower doesn’t mean Bennett Homes won’t do more in Gig Harbor. ‘We’re very bullish on that area. Once the market recovers, we think it’s a real sleeper. We think it’s the next one to explode,’ she said.”

“‘We’re seeing traffic out there, not as much traffic. We’re making sales, not as many sales. We get cancellations as well; that’s a typical part of the process,’ said Bellevue-based Quadrant Homes President Peter Orser, who declined to give specific numbers on traffic or cancellations.”

“He pointed, as many in the real estate industry do, to a seven-year time frame – the amount of time an average homeowner spends in a house – as still good for reaping a sound investment off a home purchase. ‘What goes up must come down, and what went down must come up. This is a cyclical industry. We’ve seen it before; we’ll see it again,’ he said.”

“Some builders are offering lease-to-own options for homes sitting empty longer than they anticipated. ‘It’s kind of a backup plan, but you can only do it where you’ve got strong population and employment growth,’ said Bill Riley, VP of government affairs for the Washington Association of Realtors.”

“Agent Gary Hendrickson, who specializes in new construction, said today’s builders need to know their market. ‘If you’re building it just because you own the lots, it will be much more difficult than it has been the last couple of years,’ he said.”

“Affordability will continue to be a strength that builders can use to lure buyers, he said. ‘It was always ‘Come to Pierce County because it’s more affordable than King,’ and it still is,’ he said.”

The Olympian from Washington. “An increase in funds needed to cover potentially bad real estate loans cut into Venture Financial Group Inc.’s first-quarter earnings, the company announced. The company’s net income fell in the year-over-year period because of a decision to increase funds needed to cover potential problem loans as a result of a slower real estate market.”

“Venture Financial’s loan loss provision was raised to $1.5 million in the first quarter of the year from $375,000 in the year-ago period.”

“‘We are positioning ourselves to mitigate risk in the turbulent economic and market conditions, including increasing our allowance for loan losses and making adjustments to our cost structure,’ Venture Financial CEO Ken Parsons Sr. said in a prepared statement.”

“Also in the first quarter, the company’s nonperforming assets increased to 1.72 percent from 0.27 percent, and nonperforming loans rose to 2.62 percent from 0.40 percent. Venture Bank CEO Jim Arneson acknowledged that the nonperforming asset and loan figures were a little high.”

“‘We don’t like to see them that high,’ he said.”

“The nonperforming loans were tied to an undisclosed builder and three real estate developments, which accounted for most of the company’s problem loans, Arneson said. Arneson wouldn’t disclose where the loans were made, except to say the real estate developments and the builder are either in or operate out of King, Pierce, Grays Harbor and Lewis counties.”

The Statesman Journal from Oregon. “The real estate slump has finally hit the Salem area. Sales in the Mid-Willamette Valley are down 34 percent compared with last year, according to statistics from the Willamette Valley MLS. That’s the slowest 1Q since…1996.”

“Average sales price in the area covered by the WVMLS was $237,1867, down 4.8 percent. It’s still a far cry from the double-digit price declines seen in other markets, but troubling nonetheless.”

The Source Weekly from Oregon. “Stephen Trono had grand plans for his new project, The Mercato, when he unveiled it back in the heady housing-boom days of mid 2006. Five buildings soaring as tall as 74 feet, with brick facades and top-of-the-line interiors. And, capping it all off, a series of top-drawer condos, complete with million-dollar pricetags.”

“But here in the muddy days of 2008, with the housing market in the tank and the banks running scared from speculative real estate deals, Trono says his land is likely to remain just what it is for another year: A flattened field of weedy gravel, waiting for better days.”

“‘There is so much fear in the residential market, I’m glad I don’t have product out there right now,’ Trono said last week. ‘I haven’t seen a market like this since the early 80s. There is a lot of confusion. A lot of fear.’”

“‘Financing is just really tough right now,’ said Old Mill District developer Bill Smith. ‘Boy, it’s just really tough. That’s not saying it’s impossible, but if the project depends on selling condos to succeed, you’ve got a rough road ahead.’”

“There’s the scraped dust that surrounds the Bend Brewing Company’s restaurant and pub on downtown Bend’s Brooks Street. Once slated to be the site of high-end condos and retail shops, it sits empty with a ‘for sale’ sign on it.”

“Empty lots dot both ends of downtown’s Bond Street. Major projects on both sides of the Old Mill District – a $127 million hotel/condo proposal on one end, and a sprawling retail and residential condo project on the other – remain unstarted.”

“Enough so that most of the Field of Dreams ideas that flooded Bend in the latter years of the housing boom seem destined for a long wait before their first bricks rise above the ground.”

“Franklin Crossing in downtown Bend was the first mixed-use building in town to come onto the market with luxury residential condos when it gained legal approval to sell them in December 2006. Real estate agent Norma DuBois solicited ‘reservations’ in the spring of that year. Investors and second-home buyers lined up two and three deep to put their names – but no cash – down for each unit, despite initial pricetags that ran between $500,000 and $1.4 million.”

“By the time all the legal paperwork was in place to finalize sales in December, though, the market had turned, DuBois said. It has taken more than a year and a quarter now to sell five of the eight units, at greatly reduced prices. One unit, once listed at $525,000, actually sold for $370,000. One of the three that remains for sale was once listed at $650,000. Now it’s priced at $590,000.”

“Meanwhile downtown, where the old City Center Motel stood on Franklin Street, Rick Skinner and his partners are trying to come up with a new idea for their now-empty lot. They originally planned to build more than 80 residential condos, according to plans filed with the city in April 2006. Today? It could become an office complex, Skinner said.”

“‘It’s always nice when there are lots of lenders,’ Smith said, adding ‘The market is saying there is more bad news to come.’”

“So are we going to be looking at gravel lots for awhile yet? ‘I’d hope not,’ Smith said. ‘But that’s my bet.’”

Some housing bubble news from Wall Street and Washington. Dow Jones, “When it released its preliminary second-quarter operating results early Monday, Hovnanian Enterprises Inc., one of the nation’s biggest builders, detailed more pain to come. The much-watched cancellation rate improved slightly - to 29% of gross contracts, from 32%. Hovnanian’s home deliveries fell 21% year over year, and officials estimated the company would take between $225 million to $275 million of land-related pretax charges, a jump from the first quarter’s $94 million.”

“Stung by falling land and house values, the nation’s top builders have racked up more than $21.5 billion in charges in the last two years. UBS, meanwhile, noted the impairments are much higher than Hovnanian’s $100 million forecast.”

“‘Given the continued weakness in the broader housing market, which we believe will only be exacerbated by rising foreclosures and the limited availability of non-conforming loans, we believe Hovnanian will need to discount prices further to maintain the necessary sales pace to reduce its leverage,’ wrote David Goldberg.”

The Des Moines Register. “Jamie Myers seemed the envy of Iowa’s home-building industry just a year and a half ago. Coming off his company’s best year ever in sales, Myers, president of Regency Homes, was staging elaborate public events for potential home buyers at projects like Michael’s Landing, a development that spans 340 acres in a fast-growing region of West Des Moines.”

“The site was still mostly bare ground; yet the live music, free catered food, Hummer rides and helicopter whirling overhead suggested a prosperous, promising future.”

“On Thursday, Myers sat in the mostly empty headquarters of the family business he took over, wondering if his luck had run out.”

“Myers, in an interview last week with the Des Moines Sunday Register, blamed a caustic chain of events — ‘a perfect storm’ — for the company’s decline. Industry veterans such as Bill Kimberley said Regency and a couple of other Iowa builders have fallen victim to an insatiable appetite for growth.”

“‘All it takes is one little slowdown, one little hiccup, and all of a sudden there’s not enough cash flow to pay all that interest on all of these assets and pieces of land that they’ve accumulated,’ said Kimberley, owner of Kimberley Development, an Ankeny-based builder of high-end homes.”

“‘It’s like a craps table. You got all these winnings and profits out there, but you just keep gambling it. You never pull any money off the table. And then all it takes is … to roll that seven one time and all the money is gone,’ he said.”

“The company’s business plan, Myers said, targeted spending in fast-growing suburbs where homes were in demand. When the market was good, Myers counted on his company to be helped by what he called velocity - the swiftness in which it could build and sell, build and sell. That speed created a cash flow that let it add more land and more projects.”

“Like most large builders, Regency bought swaths of land, taking control of its projects from the ground up. And then came the sharp downturn in home buying and the economy that builders and lenders didn’t fully anticipate.”

“In 2005, the company built 1,062 homes. ‘In 2004 and 2005 we were moving through product faster than we could build,’ Myers said.”

“But by 2007, that number fell to 640. The company infrastructure, meanwhile, had been ramped up to handle 1,000 or more homes.”

“Myers…didn’t see it, but Regency was not alone. ‘That’s why you see the largest builders in the country today being affected by this,’ he said. ‘The ones who build the largest communities are the ones who got hit the hardest, because we all depend on velocity. We deliver to the many, not just to one.’”

The Associated Press. “Shares of Countrywide Financial Corp. tumbled Monday as two analysts said Bank of America Corp.’s planned acquisition for the mortgage lender could be renegotiated to a lower price.”

“Friedman, Billings, Ramsey & Co. analyst Paul Miller in a research note said if Bank of America is to complete the deal, it will likely have to reduce the value of Countrywide’s mortgage investments between $20 billion and $30 billion.”

From Reuters. “The mortgage unit of finance company GMAC LLC on Monday said it needs to raise $600 million by the end of June to pay its debts and avoid ‘negative liquidity’ even if a $14 billion bond exchange offer is successful.”

“‘There is a significant risk that we will not be able to meet our debt service obligations, be unable to meet certain financial covenants in our credit facilities, and be in a negative liquidity position in June,’ ResCap said in the U.S. Securities and Exchange Commission filing.”

The New York Times. “The Federal Bureau of Investigation and the criminal division of the Internal Revenue Service have formed a task force to examine mortgages that were made with little or no proof of the earnings or assets of borrowers, a government official who had been briefed on the matter said Sunday.”

“The task force, which was established in January, stepped up its investigation in recent weeks as the financial industry disclosed billions of dollars in additional write-downs from bad mortgage investments. The latest inquiry is broader and deeper than a separate F.B.I. investigation of mortgage lenders that is also under way.”

“These days, Jeffrey M. Peek, the CEO of the CIT Group, is trying to erase lots of things from the past: namely, an ill-timed expansion by CIT into subprime-mortgage lending and the costly acquisition of a student loan firm — twin moves carried out near the top of frothy markets that quickly collapsed, leaving CIT on the financial precipice.”

“Despite the obvious strains under which CIT now labors — a plummeting stock price, mounting losses, funding woes and a loss of faith among some analysts — Mr. Peek says he wouldn’t have done anything differently.”

“‘If I was going to look back, maybe I would have gotten out of mortgages a couple of quarters earlier, but we were making good money,’ he says, matter-of-factly.”

“Changes in automated mortgage underwriting procedures at Fannie Mae will be announced soon, as it addresses rising risks in an ailing housing market, a senior executive at the United States’ largest home funding company said on Monday.”

“‘We are making significant changes to that and we will be rolling them out shortly,’ said Tom Lund, executive VP at Fannie Mae, of the software lenders use to automate the early stages of the lending process.”

“Lund also expects the housing market to face a prolonged period of working through problems spawned by several years of looser lending that drove record home sales but that led to a massive supply of unsold homes and record foreclosures.”

“‘I do think that 2008 and 2009 will be difficult years for this industry; we have a lot of overhang,’ he said. In the last few years ‘we went too far and too wide, and we are changing that … we need to realign with the risks that we are taking in the marketplace.’”

The Business Edge from Canada. “Despite the recent drop in home sales, Canada’s housing market should remain buoyant during the rest of this year, but developers face more difficulty securing loans for projects, analysts say.”

“Maureen Enser, national executive director for the Urban Development Institute, says Ontario-based banks, which have felt more of an impact from the sub-prime meltdown because they have fairly close ties to the U.S., are restricting developers’ access to capital and likely to demand higher pre-sales, which refer to units sold before construction begins.”

“Don Campbell, who heads the Calgary-based Real Estate Investment Network (REIN), says many cities have overbuilt their residential inventories. REIN represents 3,120 investors with $4.2 billion worth of residential holdings across Canada. The group sells research to investors, banks, developers and other industry insiders, but does not sell properties.”

“‘Right now, there’s a lot of fear in the market,’ says Campbell, adding sophisticated investors with a long-term view are continuing to buy properties as prices dip. But speculators - especially Toronto condo owners - are starting to panic, fearing that condo values may be headed for a big downturn.”

“‘Investors have been hoping for a buyer’s market again,’ says Campbell. ‘And now that it’s here, people are quite fearful of it.’”

“Benjamin Tal, a senior economist with Toronto-based CIBC World Markets, says prices in some pockets of Western Canada could actually fall. ‘The sub-prime story is part of the overall economic story,’ he says, adding the U.S. recession will hit Ontario and Quebec hardest.”

“But the sub-prime crisis will probably limit Canadian developers’ access to capital. ‘(Developers) feel the pain because their (interest-rate) spreads are much higher now,’ says Tal. ‘Therefore, it’s more expensive (to build) and banks are much more cautious now.’”

The Mercury from Australia. “The state is in the grip of a home mortgage crisis, with as many as five Tasmanian families and homeowners on the one day faced with the dreadful prospect of losing their home.”

“The number of house possession orders being sought in the Supreme Court by the major banks and financial institutions has jumped in the past year as increasing numbers of Tasmanians have problems paying their mortgages.”

“In February this year, 13 homes in Hobart and four in Launceston were seized after their owners could no longer keep up with debt repayments. In March, another 16 possession orders were granted in the Supreme Court.”

“The mortgage crisis is a direct result of the average price of a house in Tasmania having risen to nearly $300,000. While the size of the average home loan in Tasmania is $177,700, many mortgages taken out in the past three years have been much larger.”

“Mortgage repayments due on variable loans have also jumped considerably in the past two years.”

“Housing pressure is also being felt in well-heeled suburbs such as Sandy Bay and Battery Point. Vicki Flood, of Warrane, is one Hobart homeowner who has run into mortgage problems and is being forced to sell her home.”

“On April 15, the Supreme Court granted a possession order to Mystate Financial to seize Ms Flood’s home because she had defaulted on two loan repayments of $852 a month in November and December last year. Mystate is still owed $115,138 on a $130,000 mortgage Ms Flood borrowed in September 2004 and is legally entitled to have the entire debt repaid.”

“But the lender has agreed to give Ms Flood until June 20 to sell her house on the open market – she hopes to get about $239,000 – before it forcibly repossesses her home. ‘What happens then if there is no sale? I just want to know where I stand,’ Ms Flood asked Associated Justice Stephen Holt in the Supreme Court.”

“‘Well, the scene ends up like you see on the television shows – the sheriff or police come in and change the locks,’ Justice Holt explained.”

The Tribune Review reports from Pennsylvania. “During the first three months of 2008, 1,187 houses were foreclosed in the five-county Pittsburgh region, the second highest total for a three-month period on record, according to RealStats. Another report found that during the 23 months between January 2006 and November 2007, 9,046 homes had foreclosure proceedings in Allegheny County. Carl Grasha in Monroeville, has been specializing in the sale of foreclosed properties since 1971. He finds that 80 percent to 90 percent of the houses he sell have debris and rubbish left in them.”

“Often, the problem stems from the lack of funds the former owners had to maintain the properties. ‘I had to remove nine dumpsters full of trash out of one house recently, just to get it into safe and clean condition,’ he said.”

The News Post from Maryland. “Auctioneers saw it coming. They knew the subprime loan frenzy would cause many homeowners to mortgage their futures. ‘In 2005, we found that some homebuyers were not well informed, yet they had no trouble getting no-documentation loans,’ said Paul Cooper, VP at Alex Cooper Auctioneers, based in Towson.”

“‘You scratched your head,’ he said. ‘It didn’t make sense. When the trouble came, it wasn’t a real shock.’”

“David Prinsky, an attorney for (a) Washington-based law firm, said that in early 2006 he figured trouble was on its way. ‘Everybody knew that the anniversary dates for graduated interest rate loans would come due in 2008, and that a lot of people would be caught in that,’ he said…referring to 2/28 subprime loans, with deals of two years at a fixed interest rate and 28 years at a higher variable rate.”

“Once the variable rates hit, many borrowers can’t afford their mortgage payments. ‘Bank of America saw it three years ago when it announced that it was no longer offering creative financing,’ Prinsky said.”

“‘For investors to buy distressed properties as a profession, yes, they can make a lot of money. But one or two bad decisions can cost them,’ Prinsky said. ‘For that reason, these investors tend to be very conservative, and property values are now headed in one direction — and it’s not up.’”

“The foreclosure problem is having an impact on the Frederick community. Appraiser Wayne Six says foreclosures negatively affect the local real estate market in two ways: increasing the volume of inventory, and foreclosed-on homes selling below market value that tend to pull down the market.”

“‘Newer tract subdivisions where homes are three years old or less are typically the worst case scenario. This is because our local market peaked in June 2005,’ Six said. Some homeowners with those newer homes are finding themselves what Six calls ‘upside down.’”

“In 2006, 455 foreclosures were filed in Frederick County Circuit Court. In 2007, that number more than doubled to 1,025. This year, as of April 18, the foreclosure count stood at 485, and experts say there’s worse to come.”

“Foreclosures this year include $219,000 townhouses in Hillcrest Orchards and $650,000 single-family homes on quarter-acre lots in the Villages of Urbana. And the problem is affecting people across the economic spectrum, from construction workers to white-collar employees.”

“Frederick County hasn’t quite hit bottom yet, said appraiser Wayne Six. Typically, Frederick County has a balanced housing market when about 1,100 to 1,200 homes are for sale. As of April 21, 2,023 homes were available, he said.”

“Inventory has grown since mid-January, when it was 1,850 homes. The county is seeing 40 to 45 sales a week, compared to 20 to 30 a year ago, but 60 or so homes are still coming on the market each week, Six said.”

“‘It’s like we have a fish on (the hook), and he’s still taking the line out a little bit, but he’s not smoking the reel like he had been,’ Six said.”

“Generally, areas taking the hardest hits now are the ones where home prices rose the most, said Andy Bauer, a regional economist for the Federal Reserve Bank of Richmond. In the Mid-Atlantic region, Prince George’s County and Virginia’s Prince William County are having the biggest problems.”

“Prices are adjusting, but housing inventory throughout the Washington-Baltimore region is going to need to fall farther before being cleared out, he said.”

The Washington Post. “After self-proclaimed handyman Kevin Garvey had browsed more than 30 houses in Northern Virginia, the price and location of the single-family house off Liberia Lane made the first-time home buyer move to Manassas.”

“‘There were a lot more options in Manassas than in other areas,’ said the 24-year-old, who looked in Leesburg, Centreville, Ashburn and Alexandria before buying the $305,000 house. ‘This was a bank-owned property at a good price. It was an offer I couldn’t pass up.’”

“Garvey is one of many first-time home buyers making their way to the area, real estate agents said. After a plague of foreclosures, Prince William County, Manassas and Manassas Park finally have some positive activity in the housing industry.”

“‘I’m happy to say we are seeing a lot of first-time home buyers,’ said Carolyn Capalbo, a real estate agent in Manassas. ‘People are seeing the prices come down to a point where it makes sense to purchase. What they would be paying in rent versus a mortgage is about equal, so there is a strong argument to buy.’”

“Because of the number of foreclosures in Prince William, Manassas and Manassas Park — 659 in March — a lot more affordable houses are on the market, real estate agents said.”

“Although Garvey, who moved from Tallahassee, said he didn’t expect to buy a house at age 24, the prices here vs. in Florida made it a better option. ‘What I found interesting here with the foreclosures was I could get a better deal than what I could have gotten in Florida’ for the same size home, Garvey said.”

“‘Real estate agents said the Prince William market is heating up more quickly than others because it took a bigger hit.”

“The housing market is looking much more affordable in Prince William than in other places,’ said Stephen Fuller, an economist at George Mason University. ‘Prices got way too far away from reality across the region. Prince William is adjusting more substantially and will be a much better housing market in the long run because there is a better balance between value and price.’”

“The MRIS data show the average recent sale price of a Manassas house is $195,500, 40 percent lower than last year. In Prince William, it’s $299,600 — a 26 percent drop. The average cost of a house in Fairfax and Loudoun is still more than $400,000.”

“‘As a small-time investor, you can’t go wrong, especially now,’ said Lou Coletta, who just invested in his second Prince William property. ‘Prince William was hit the hardest, and prices have taken a tremendous drop.’”

“Keith M. Elliott Jr., with Re/Max Olympic Realty in Haymarket, said that though houses are cheap, buyers need to be cautious because foreclosed properties come as-is. ‘The state of some of these homes was disgusting,’ said first-time home buyer Sue Lozano, who looked in the Prince William area before settling on a house in Chantilly. ‘People just didn’t care what state they left them in.’”

The Free Lance Star from Virginia. “The residential rental market in the Fredericksburg area has stayed strong as housing sales and prices have slumped, local Realtors say. Linda O’Sullivan, an agent who does both rentals and sales, said rental prices have stayed steady or even gone up in the past couple of years, a time in which median sales prices in the Fredericksburg area have dropped nearly 25 percent from peak to trough.”

“She said demand is mostly coming from people who were thinking about buying a home, but who have decided to wait out the recent economic downturn.”

“Realtors say foreclosures have played a role also in the demand for rental property. A Thursday search of RealtyTrac turned up more than 1,000 foreclosures each in Stafford and Spotsylvania counties. ‘All those people going into foreclosure have to live somewhere,’ said Cathy Butler, property manager in Spotsylvania.”

“O’Sullivan said the Fredericksburg area has traditionally had a strong rental market. The developers of Cobblestone Square in Fredericksburg are banking on that strength as they transform the community off Lafayette Boulevard from condominiums to apartments.”

“Chris Waller, who is VP of Cobblestone partner Garrett Development Corp., said apartment developers have shown interest in the undeveloped portion of the community. Eighty-four condos have already been built at Cobblestone, and about 60 have been sold. Waller and other Cobblestone developers are looking for a buyer who will build 292 apartment units at the site.”

“Waller said if they built all those units as condos, it might take years to sell them, leading to fire-sale prices. But he said the apartments should prove popular.”

“‘The market won’t allow anything else right now,’ Waller said.”

The Citizen Times from North Carolina. “Western North Carolina hasn’t been hit as hard as most places by the wave of home mortgage foreclosures sweeping the country, but more families are losing their homes, and the problem appears to be worsening. The number of foreclosures in WNC for the first three months of the year was still up 20.3 percent over the first quarter of 2007.”

“‘There are some time bombs out there,’ said Victor Moore, a financial adviser for (a) consumer credit counseling agency serving WNC. ‘It looks like (the increase in foreclosures) will go beyond a one-year event.’”

“‘The lenders really set it up’ in some cases so that adjustable rate mortgages, or ARMs, were hard for borrowers to resist, said mortgage broker Kent Wolff. ‘If you had someone with extremely damaged credit … they’d say, ‘Well, congratulations, you’re approved. Your rate on (an ARM) is 8.5. Your rate on a 30-year fixed (mortgage) is 11 percent.’”

“Wolff said…it is ‘absolutely, positively correct (that) there were a large number of less scrupulous brokers’ just looking to make a quick buck on a loan.”

“The causes of the problem locally and nationally are similar: Lenders lent too much, borrowers borrowed too much, and when what had been a spectacular upward climb in home values finally faltered, or a borrower suffered a financial reversal, both sides were left exposed.”

“‘People got used to — on both sides of the ledger — thinking that home prices are always going to go up,’ said Mark Pearce, North Carolina’s deputy commissioner of banks.”

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