The Housing Bubble

It’s Friday desk clearing time for this blogger, “The most severe real estate recession in decades appears far from over, with the pace of foreclosures rising, the fall in home prices accelerating and the pain spreading to nearly every major U.S. city, according to two reports. Gary Sweredoski, a Realtor in Myrtle Beach, S.C., is behind on his own mortgage and facing possible foreclosure. He’s also sought bankruptcy protection.”

“‘I’m a real estate broker, and my business just died,’ says Sweredoski.”

“I decided to take a look at Greenwich, CT, one of my favorite enclaves of multi, multi-million-dollar homes. Existing home sales in Greenwich are down 37.5 percent in March from a year ago and prices are down 13.7 percent. What’s even more disturbing, given the median income of the typical Greenwich homeowner, the number of Greenwich foreclosures in March was twice what it was a year ago.”

“If Greenwich is falling, perhaps the super-rich are not so immune to this housing crash as we’ve been saying all along.”

“Moving to a 55-and-older condominium community was supposed to make life easier, Richard Greig said. ‘This was supposed to be our retirement dream. We were going to come here and we wouldn’t have to mow the lawn or shovel snow,’ Greig said.”

“Instead, Greig and other residents of two incomplete developments in Litchfield, have been left to scramble through the financial and legal wreckage of a housing market gone sour and an allegedly bankrupt developer with a history of legal entanglements.”

“‘There’s nobody that lives here that’s happy that they purchased here at this point,’ Greig said. ‘But we’re stuck here now.’”

“‘I’m not the only developer out there having a tough time right now, it’s a tough market,’ said Richard C. Berube of Londonderry. ‘The bank is part of the problem. The real estate market is part of the problem. I’m probably part of the problem.’”

“The nationwide housing slump isn’t keeping adventurous single women like Roxanne Williams from buying homes in the Victor Valley. ‘There’s no point in me paying rent and I want security for myself and my children,’ said Williams.”

“‘I have probably 10 single moms at my office out of 60 Realtors and they’re all buying homes,’ said Caroll Yule, a broker and president of the Victor Valley Association of Realtors.”

“After years that saw developments sprout up faster than rooms could be sold, Center City’s high-rise boom seems to be slowing. Projects have been quietly canceled or delayed, and with a glut of units on the market, more and more realtors see at least a temporary slowdown in the works.”

“Alan Domb, whose real estate company owns high-rise condo buildings including the Parc Rittenhouse, said it could take as long as two years for the market to regain its footing. ‘If you haven’t started a project, and you’re thinking of starting in this environment, you have a better chance of seeing God,’ Mr. Domb said.”

“Prices in the Bay Area and Los Angeles are about where they were in August 2004. Hard-hit Detroit has retreated to its August 1999 level. Seattle, on the other hand, is back where it was July 2006. The 20-city Case-Shiller home price index is now roughly where it was in January 2005, about 3 1/3 years ago.”

“Let’s not forget that in the second half of 2004, prices in Las Vegas were soaring 50 percent on a year-over-year basis. Anyone who thought that would go on forever spent too much time in the desert sun.”

“Billionaires Warren Buffett and Charlie Munger say the pain many financial institutions are feeling because of the credit crunch is well deserved. (They) said that the financial companies that engineered subprime mortgages and the investment funds backed by those mortgages don’t deserve much sympathy as they record losses now.”

“Munger said lots of financial institutions acted with stupidity and overreached to improve earnings in recent years. ‘I think you have to start with the idea that a lot of the current troubles are richly deserved,’ Munger said.”

“Steve O’Conner, chief lobbyist of the Mortgage Bankers Association, said, like many before him have said, ‘We are clearly in extraordinary times. This is the greatest housing crisis in the country since the Great Depression.’”

“O’Connor answered a question about relief for lenders by saying: ‘Nobody’s going to bail out lenders. There is zero sympathy for lenders. I know because I go up there (to Capitol Hill) every day.’”

“American International Group Inc. shares were under pressure Friday morning, retreating after the blue-chip insurer reported a quarterly loss of nearly $8 billion triggered by huge write-downs on credit investments gone sour. The results were driven by a $9.11 billion write-down on a credit derivatives portfolio and $6.09 billion of net realized losses from AIG’s investment portfolio.”

“‘Although we expected that AIG would have some losses in the first quarter, the level of the additional losses exceeds these expectations,’ S&P credit analyst Rodney Clark said. Fitch Ratings downgraded the firm too.”

“Fremont General Corp, which is selling assets after regulators ordered it last year to stop subprime mortgage lending, on Friday said it may file for bankruptcy protection.”

“Economist Mark Zandi says the nearly nine million homeowners with negative equity are particularly vulnerable in this weak economy.”

“‘These folks are in big negative equity positions. If there is any disruption to their income at all, they have a major problem. And disruption to income doesn’t mean what it used to. Disruption to income ten years ago meant death, divorce or major disability. Disruption of income now means, well, I have to replace two tires (on my car), or my water heater broke,’ he said.”

“What was once a red hot market has softened and the number of homes on the market has jumped. ‘Sales are much lower than in the past three years,’ said Donnie Brainard of Alameda Property Group. ‘Las Cruces hit a high and now we’re hovering at the bottom edge of a cycle.’”

“There are more than three times as many homes on the market this year than four years ago. The first quarter of 2004 saw 474 listings while this year there were 1,593. ‘We’re still seeing tons of interest from California and places like Wisconsin,’ said Rick Stoes, managing director of the Grubb & Ellis office in Las Cruces. ‘I think we’re still ahead of the nation.’”

“Oklahoma City’s market conditions are not as bad as they are in many areas of the country, Oklahoma City Realtor Faith Thomason said. Thomason said, ‘It is a buyer’s market, even in Oklahoma City, because we have so much inventory.’ For example, she said that in just the southwest area of Edmond, there are more than 200 new homes on the market.”

“‘Don’t get anchored to a price,’ she said. If a neighbor’s house sold for $180,000 last year, that doesn’t mean that you can reasonably expect your home to fetch the same price.”

“According to Southern Oregon MLS figures, 288 existing homes sold in the rolling quarter that ended April 30, a decline of 33 percent compared to the corresponding three months in 2007. Broker Vic Nicolescu says one in four sales during the rapid-fire sellers’ heyday earlier this decade were to people who have since flooded the market with inventory.”

“‘A quarter of the sales in 2004 and 2005 were to speculators and investors with no intention of occupying the property they bought,’ Nicolescu says. ‘It should be obvious to everyone that we’re in for at least another year of a buyer’s market. Buyers can be very picky and sellers are going to get their brains beat in.’”

“‘These are tough economic times,’ said Mayor Antonio Villaraigosa. ‘The fact is a lot of economists, a lot smarter than I am, didn’t see this coming. A year ago, no one expected us to have the problems we are to the extent we are.’”

“‘The No.1 issue on the minds of voters is the economy,’ said David Fleming, president of the Economic Alliance. ‘We have an economist at the L.A. chamber who four years ago predicted the housing bubble would burst. We have seen prices decline by 20 percent, … and they could go down another 20 percent.’”

“I’ll admit it: When home prices were soaring in my neighborhood, it made me feel really smart. As the years went by, and all of us on the block could count our home appreciation month by month, all this paper equity made us feel financially secure as in, ‘Now we know how we’re going to pay our college tuition bills down the road.’”

“But as they say, easy come, easy go. Home prices in our neck of the woods have been falling just as they’ve been falling around the country.”

“The huge drop in home equity has spooked home sellers. Foreclosure rates have skyrocketed, hitting new records. Banks are still taking weeks and weeks and weeks to parse offers from prospective buyers. Buyers are getting fed up and are moving on to make other low-ball offers.”

“Fighting through all this to get a deal done is like wading through Jell-O. Just ask any real estate agent who hasn’t torn his or her hair out yet.”

“If the news isn’t bad enough, I’ve been hearing from readers around the country who are in shock that their home equity lines of credit have been shut off. This is what a stuck housing market looks like. Nobody feels that smart anymore.”

The St Petersburg Times reports from Florida. “Hold on to that house. Lawrence Yun, chief economist with the National Association of Realtors, says it will be worth at least 20 percent more. But you’ll have to wait until 2013. In a presentation Wednesday to the Greater Tampa Association of Realtors, Yun predicted the Tampa Bay area housing market will revive by next year and resume appreciating at a modest pace.”

“‘By five years from now, comfortably, things will be much better,’ Yun reassured more than 100 association members in the crowd.”

“Homes could eventually attract premium prices obtained in places like San Francisco, Yun said. ‘There will be a tipping point where Tampa becomes a superstar city,’ he said.”

“Appointed the association’s chief economist a year ago, Yun has faced skepticism in the past about his guesswork. During a visit to Tampa last June, he foresaw a ’sonic boom’ in home sales if the Legislature lowered property insurance rates. Rates went down a bit, but the region is still waiting for the boom.”

“Yun said his role at the national association is to promote positive trends as long as the information is factual.”

“With local home sales off by more than half since the 2005 peak, Realtors were grateful for the bit of good news. They thanked Yun with a warm ovation. ‘We’ve been doing it for 100 years. We’re going to be doing it another 100 years,’ said Deborah Farmer, president of the Tampa association. ‘Because Realtors rock!’”

“These days, a tension hangs over the quiet streets of Andalucia. Rival groups of property owners avoid each other except at board meetings, where they clash. The Andalucia Master Association’s board has been trying to force owners of vacant lots to build houses since 2003.”

“‘It really has turned personal,’ said Leon Arndt, one of a group of dissenting lot owners. ‘People cross the street to avoid meeting each other. It’s tearing the community apart.’”

“Late last year, the association replaced that demand with orders to install landscaping, sidewalks and other amenities on empty lots. Lot owners objected, saying the improvements would cost them $20,000 to $30,000 each.”

“Among the residents who support letting lawyers sort it out is Sandy Hopper, who lives next door to Arndt’s vacant lot on Rubia Circle. ‘I don’t know too many people who can pay $850,000 for a lot and then cry poor because they don’t want to pay $30,000 to fix it,’ said Hopper.”

“That 2005 purchase price is accurate, Arndt said, adding, ‘I’d be surprised if I could get $600,000 for it now.’”

“One of the reasons behind the housing boom through 2005 was heavy migration into the Tampa Bay area from places like the New York City suburbs, Chicago and Miami. And one of the reasons homes aren’t selling as they should this year is that the pipeline of transplants from these feeder markets is drying up.”

“The drop in home sales the past year in Queens, Suffolk and Nassau counties in New York, the Chicago region and Miami are worse than the sales drop in the Tampa Bay area.”

“‘Going back to 2001 through 2005 we had a huge (number) of homeowners cashing out and moving not just to Florida but to the Carolinas. In the last 24 months, we’ve seen very few,’ said L.P. Finn III, whose family owns one of Long Island’s largest realty companies. ‘Our referrals to fellow brokers in Florida are way off, about 50 percent off.’”

“Chicagoan Lynn Tempera bought a house in Pasco County’s Oakstead neighborhood as the housing fever tightened its grip in 2005. But when she returns on visits to her suburban Chicago haunts, she gets a glaring lesson on why fewer Midwesterners are duplicating her Florida migration.”

“‘My daughter lives in Huntley, Ill. The same houses are still for sale every time I go up there. It’s been that way for over a year,’ Tempera said.”

“Homebuyers still see better values in Florida than in New York, Finn said. ‘But they’ve said, ‘Let’s put that move off a couple of years.’”

The Herald Tribune in Florida. “Sarasota attorney John Yanchek admitted that he helped a client prepare two sets of mortgage documents with two different sales prices and that he lied about money that was supposedly held in trust. When asked why at a Florida Bar hearing Thursday in Sarasota that could be a prelude to the stripping of his law license, Yanchek said it was because his clients asked him to.”

“‘I was instructed by my client to sign it, and I signed it,’ said Yanchek, referring to a mortgage document that bore an incorrect sales price. ‘It was not the smartest thing in the world to do.’”

The News Press from Florida. “Building industry representatives want Lee County to make massive cuts in its budget for permits and inspections before a $430,000-a-month deficit drains the coffers dry.”

“The industry has been hit hard by the collapse of housing prices in the county: Median price for an existing home was $212,500 in March, down 34 percent from $322,300 in December 2005, at the height of the boom.”

“As a result, new houses can’t be built for what existing ones cost, and construction has plunged. A similar situation exists in Cape Coral, where a similar fund is running a deficit.”

“‘We’re having to do some difficult things and having to let some very good people go’ as construction jobs become scarce, said Dennis Cantwell, a director of the Lee Building Industry Association. ‘It’s not easy for us and it’s not easy for the county, but it’s the sort of choices they have to make.’”

From CBS 46 in Georgia. “The housing crisis is hitting home in Georgia. Foreclosures hit record highs this month, and real estate prices across Metro Atlanta are plummeting.”

“‘I couldn’t tell you what will happen to me,’ Ruby White said. Her house was scheduled to be sold to the highest bidder at this month’s foreclosure auction on the Fulton County courthouse steps. ‘I can’t sleep at night,’ White said.”

“White’s mortgage payments jumped from $780 a month to more than $1,200. That’s more than she takes in on her monthly fixed income. ‘I’ve been living here for 38 years,’ White continued.”

“‘Prices are still going down,’ Steve Palm said. His company tracks trends in home values across the Metro Atlanta using actual home-buying and selling prices. According to Palm, White lives in one of the hardest-hit areas for foreclosures and price reductions in the metro area.”

“‘In these areas, we saw the price go down by 8 percent or more,’ Palm said, pointing to a map that showed areas in Clayton, South Fulton, and DeKalb County. According to Palm, more than half of Clayton County is in what he considers a ‘crisis zone,’ where home prices have dropped 8 percent or more in a 12-month period.”

“‘Pretty much the south side or below Interstate 20 has seen the greatest reduction in price,’ Palm continued. ‘Clayton County, South Fulton, South Atlanta, we have some areas in DeKalb.’”

The Atlanta Journal Constitution from Georgia. “To those optimists who argue the housing market is about to turn around, one of Atlanta’s top developers begs to differ. ‘We believe it will be some time — at least the second quarter next year — before we see any substantial recovery in the residential markets,’ Tom Bell, CEO of Cousins Properties, told shareholders.”

“‘We’ve stopped producing lots in almost all of our projects and are now watching the market closely for the opportunities that inevitably show themselves during tough times,’ he said. ‘We’re seeing office users that are slower to commit or expand, retailers that have significantly pulled back on new locations and residential buyers that are still waiting to see if we’ve hit bottom.’”

“A Cousins condominium building in Buckhead is scheduled to open in three months. Only 25 percent of the 137 units have sold thus far, Bell said. Two other condo projects — CityPlace at Buckhead and the Premiere at Fox Plaza — were put off because of the soft market. CityPlace was a joint venture with The Related Cos.”

The News & Observer from North Carolina. “Progress Energy’s utility meters are spinning noticeably slower in Florida, a reflection of the national real estate bust that has stalled the Sunshine State’s economy.”

“The Raleigh electric utility reported Thursday that earnings dipped 3.5 percent in the first quarter of this year as the once-booming growth in Florida’s population has slowed to a trickle. Tens of thousands of unoccupied homes in Florida have swelled a backlog of unsold or foreclosed properties in that state’s housing market.”

“‘This is permanent for the next year or so until we see the housing inventory reduced,’ said Peter Scott, Progress Energy’s chief financial officer. ‘This is just a temporary slowdown.’”

“Rising demand in recent years emboldened Triangle apartment landlords — many jacked up rents and fees while offering fewer giveaways. But the tables could be turning as a crush of new apartments hits the market and job growth slows.”

“‘We’re starting to see adjustments that could put money into the pocket of the renter,’ said Brian Reece, a partner at Karnes Research, which collects data for the Triangle Apartment Association.”

“The Triangle labor force is growing at its slowest pace since 2003, state labor data show. During that period, 3,647 new units became available — the most in any year since 2002, apartment association data show.”

“Another bit of foreshadowing: The region’s apartment vacancy rate is climbing for the first time in six years. At least 9.2 percent of the region’s 91,800 apartments were empty at the end of March, up from an eight-year-low of 7.8 percent a year earlier.”

“Meanwhile, 3,687 units are being built, in addition to a growing number of unsold homes that are moving to the rental market. There were 7,123 units on the drawing board at the end of March, according to the apartment association.”

“‘A few years ago, money was very easy to come by,’ said David Ravin, president of a Charlotte company that is building at least 612 apartments in communities in Cary, Chapel Hill and Raleigh. ‘But the money has been cut off. And while we might have a bubble here to get over, there’s going to be a slowdown in supply.’”

The Charlotte Observer from North Carolina. “Charlotte-area home sales and construction plunged during the first quarter, outpacing national declines. The eight-county region has now seen four straight quarters of worsening declines, and the current period may be even more painful.”

“‘It was bad, and I believe second quarter will be worse,’ said Chuck Graham, a longtime expert on the area real estate market. ‘We’re getting into the worst time for us.’”

“A national index also shows the Charlotte market as the only one of 20 urban areas where home prices are still appreciating. But those measures are scant comfort to anyone struggling to sell.”

“Scott and Angela Gibson have dropped the asking price on their Charlotte home nearly 9 percent, to less than $175,000. They moved back to Tennessee in November after he was laid off. They’re straining to pay rent and the $1,400 mortgage payment. One month, they sold their lawn mower to raise mortgage money.”

“‘We are an average middle-class family, and this has left us financially spent and worn out,’ she said.”

“Charlotte logged a record year for sales and construction in 2006, even as housing markets elsewhere slowed. The region’s sales rose further during the first three months last year. Since then, they’ve tumbled hard. ‘We’re late to the party, but we have arrived,’ said Matt Martin, an economist with the Federal Reserve branch in Charlotte.”

“Newcomers, like the Gibson family, have propelled the Charlotte region’s growth and kept houses selling. The Gibsons studied several cities as they contemplated a move in 2006. They bought in the Davis Lake community.”

“But they found costs higher than they expected, from taxes to child care and food. Last October, he was laid off from his job in marketing for a lawn and power equipment company. It was time to leave.”

“They first asked $191,900 for their house on Windchase Lane. They’re at $174,900 and willing to negotiate.”

“‘When we bought … there was such a high competition for good homes, and when you saw something good, you had to make a bid quickly,’ Angela Gibson said.”

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