The Housing Bubble

It’s Friday desk clearing time. “John Lesniewski decided to auction off two houses he owned. Lesniewski, a real estate agent in Suitland, acquired the homes from clients of his under a guaranteed sales program, meaning he agreed to buy the homes if they didn’t sell within a set time.”

“But last year, prices dropped more quickly than he anticipated and he ended up with an unacceptable 13 percent of the homes, he said. To avoid getting hammered again, he hired an auction house this year to sell one house he bought in Laurel and another in Beltsville. He received about $40,000 less than he wanted for the two combined, but he accepted the bids because he needed the money.”

“‘It was a failed experiment,’ Lesniewski said. ‘I should have kept the one in Laurel and rented it out. It was an act of desperation.’”

“The U.S. housing market weakened further in April with a flood of homes coming on the market even as sales and prices declined, the National Association of Realtors reported Friday.”

“The number of homes on the market represented an 11.2 month supply at the April sales pace, the biggest since the combined single-family/condo records began in 1999. The inventory of unsold homes and condos jumped 10.5% to 4.55 million, an ‘uncomfortably high’ level, said Lawrence Yun, chief economist for the real estate trade group.”

“The median price of an existing home fell to $202,300 from $219,900 in April 2007.”

“‘We had an unrealistic run-up of prices and the faster they come back down to the real world the better,’ William Cheney, chief economist at John Hancock Financial Services, said in an interview with Bloomberg Television. ‘The faster prices come down, the quicker we can get back to an equilibrium where we actually have transactions.’”

“The housing market nationwide has been faltering and prices were down about 4 percent in Michigan overall in the past year, said Samuel D. Kahan, senior economist with the Federal Reserve Bank of Chicago’s Detroit branch.”

“Mr. Kahan suggested that the housing price drop could be a great marketing tool for Michigan. ‘You can tell people they can get a four-bedroom home for the price of a three,’ he said.”

“The city of Orlando is holding workshops to educate the public about the dos and don’ts of foreclosure. ‘We’re in a situation where our bills are higher than our income,’ Russ Mayo said. ‘We got a good price for our home three years ago, but now it’s worth less than what we owe on it.’”

“Home foreclosure numbers continue to soar in Central Florida. But now, anecdotal evidence shows that many lenders have yet to send foreclosure notices to scores of homeowners who’ve missed more than a year’s worth of mortgage payments.”

“‘Banks overall are not in the business of owning real estate — they don’t make money that way,’ says Jeffrey Schimmel, an associate who does research on banks and real estate in Boca Raton. After all, he says, ‘It’s not like it’s going to sell this residential product today or tomorrow.’”

“Stockholders of New Century bank told their board of directors Thursday they are concerned about the company’s lending policies of the last year that have resulted in more than $5 million in loans that have not been repaid and a falling stock price.”

“New Century CEO Bill Hedgepath II said the loans were not the sub-prime variety that have plagued so many other banks. ‘We were basically loaning money to people who couldn’t pay it back,’ Mr. Hedgepath said.”

“Stockholders did not like to hear the news of the bad loans or the continuing drop of the stock price. ‘I am an unhappy investor because I have lost a lot of money,’ Frank Arnette of Fayetteville said.”

“One of Britain’s largest estate agents has fallen victim to the slowdown in the housing market, prompting fears for thousands of jobs around the country. Peter Rollings, managing director of Marsh & Parsons, the London estate agency, gave warning that up to a third of the estimated 12,000 to 14,000 estate agents nationally could lose their jobs over the coming year.”

“‘The loss of a third on the back of four years of ridiculous growth would bring it back to normality. It would end the oversupply of hopeless estate agents who in the boom pretended they could sell houses simply by sticking a board outside a home,’ he said.”

“Ahmet Kurtul, the chairman of Majestic Pine Construction in Didim, which sells luxury houses mostly to Britons, said housing sales had decreased by nearly 90 percent since the beginning of the subprime crisis. He said real estate had lost its attractiveness as an investment instrument due to rising interest rates around the world.”

“‘Most of our customers were buying houses with remortgage loans,’ he said. Kurtul said Britons had been buying second homes in Turkey, but that they simply stopped as it became too costly with the increasing loan rates.”

“Hopes that a slowdown in Singapore’s property market is temporary are fading as an uncertain economic outlook and a looming housing glut threaten to plunge the sector into a prolonged downturn.”

“Barclays Capital economist Leong Wai Ho said an impending oversupply will worsen the problem, with 66,000 new homes expected to be completed over the next four years, against forecast demand for 50,000 in the same period. ‘This is the start of a multi-year price correction. Private residential property prices could easily fall by up to 30 per cent by 2010,’ says Ho.”

“The slump in the residential property market and the building industry means less work to go around. ANZ economist Cameron Bagrie said it was important to remember that the good times were not here for ever. ‘The lesson here is that - there is a business cycle, house prices did not always go up, the unemployment rate does not always fall,’ he said.”

“Canada’s long-running housing boom has ended, with the formerly bubbling markets of Calgary and Edmonton already having gone from hot to not, and with the current hot spots of Saskatoon and Regina to follow, a major Canadian bank says.”

“‘After yet another blockbuster year for Canada’s housing markets in 2007, the much-anticipated housing market slowdown in Canada has arrived,’ RBC said.”

“‘The delayed arrival of softer housing markets can be partly attributed to recent mortgage innovation that has seeped into the Canadian market during the last two years,’ it said.”

“Real estate leaders weren’t sure what to make of the sales price figures - up from March to April, but down on the year. ‘I expect there to be a little bit of a jiggle just because of the nervousness of the nation,’ said Victoria Caldwell, VP of the Oklahoma City Metro Association of Realtors’ MLS.”

“Caldwell recalled that just before the 1980s oil bust, ‘there were a lot of wet bars and in some houses you had dance floors.’ Then came the bust and reduction in personal spending.”

“DataQuick reported this week that Sacramento County posted its first gain in year-over year home sales in 37 months. The neighborhoods that made it happen have an abundance of homes with falling values ‘People who have been locked out of the market are buying homes at $130,000 and $140,000,’ said Kevin Cooper, a broker who handles many of the bank-owned listings now in south Sacramento and Elk Grove. ‘There are pretty nice homes out there, homes that previously sold for $275,000 to $300,000.’”

“‘From the Mexican border to Northern California, any ZIP code where prices have fallen a lot is now posting relatively strong sales,’ said DataQuick analyst Andrew LePage.”

“Portland-based Realty Marketing/Northwest says it’s taking bids for a 40-lot project called Heritage Park Estates in Loomis. The bank wants a minimum of $1.7 million, says John Rosenthal, president of the auction firm. He says the property once listed for almost $5 million.”

“The median price for a resale home in Las Vegas will continue to soften this summer, dragged down by foreclosure properties that are “stuck” in lenders’ inventory, housing analyst Dennis Smith said.”

“‘There’s these things called short sales,’ he said. ‘Nobody talks much about them. We hear about foreclosures. Short sales are out there by the gazillions. The banks are taking months and months and they’re just sitting out there.’”

“Smith said Countrywide Mortgage issued a memo saying it would take at least six months to respond to a short sale offer, which is a bank-approved sale for less than the balanced owed on the home.”

“‘What that does to the market is extend the recession,’ he said. ‘I’d rather take the hit and move on.’”

“Gilles and Nicci Imbert moved from Paris, France, into the brand-new Inspirada community two months ago in search of something different. The problem is, not many others have joined them to date.”

“‘I like this kind of place because Nicci is safe and there’s the park,’ Gilles Imbert said, strolling down the empty streets. ‘On paper it’s great. On paper.’”

“Although said Lacey Hawk, who moved in at the end of last year, like others, expects the market will turn around, she and several neighbors said the values of their homes have plummeted by about $100,000. Troubling as that is, Hawk is more concerned about the community HOA.”

“‘It felt inspired,’ said Hawk. ‘It was the old style of people getting together. I thought this was going to be different.’”

“A welcome sign still hangs by the front door. But Charles and Stephanie Masoner say their three-year-old neighborhood just isn’t what it used to be. ‘I think everyone’s just feeling really down, I mean, you talk and the biggest thing is the housing crisis in our neighborhood,’ Stephanie said.”

“That’s because each week more homes fall into foreclosure or are put on the market at slashed prices. ‘This one was originally $360,000 and it’s now selling for like $190,000, right next door to us,’ Stephanie pointed out.”

“When they bought in 2005, they felt like they’d lucked out. ‘They basically told us if you wait you won’t be able to afford one down the road. You know, so buy one now. You know that kind of scare tactic almost,’ said Stephanie.”

“They paid $329,000 for the brand-new, four-bedroom house. It was one of the lowest-priced homes their Aliante community.”

“We’ve all heard the experts say things will get better or it will just take time. But the Masoners say they can’t wait much longer. Charles’ father is ill and they need to move to Idaho to care for him. But with their life savings tied up in the home, just walking away isn’t an option.”

“‘We just feel like we’re in jail, in this prison. Love the house, but it’s just… it’s a nightmare,’ Stephanie said.”

“Today, we are going through the real estate boom and bust. Bankruptcies are climbing again. Houses sit empty. Home improvement projects languish. Builders, contractors, landscape designers, interior designers, roofers, pool builders and more are hurting. Investors are complaining. Brokers are being blacklisted. Refinancing options are drying up.”

“‘No man is an island,’ John Donne wrote a long time ago. Donne’s truism is just as valid today. Our actions, whether wise or foolish, short-sighted or far-sighted, affect many, many others for better or for worse. We need to consider that the next time we take a chance on an unrealistically hot market.”

A report from the Connecticut Post. “Foreclosures are so prevalent in New England that one Massachusetts-based research firm is tracking them weekly as an integral part of the real estate market. The Warren Group announced Monday it is offering a new quick-search feature listing foreclosures by state and county for subscribers. The Warren Group said there were 3,789 filings in the first quarter of 2007 in Connecticut, compared to 5,855 in the first quarter of this year.”

“‘It’s not good,’ said veteran mortgage broker and Realtor Mark Ballaro, of Fairfield. ‘I don’t need The Warren Group to tell me that.’”

“Ballaro, who has been in the business for 23 years, said this market is reminiscent of the 1990s, when sales and prices crashed. ‘Im showing the places,’ Ballaro said. But he’s not getting many offers and those he does get are often $100,000 less than the asking price.”

“These days are a far cry from 2005 and 2006, when the ‘asking price was the starting price,’ he said, which meant a higher sales price. Buyers are thinking, ‘Why should I buy now, when next year I could buy for less?’ Ballaro said.”

“Todd Martin, of Fairfield-based Todd P. Martin Economic Services, agreed the problem in Connecticut is similar to the 1990s in that there is too much supply.”

“Martin said the real estate agents he talks to say there are people putting their homes on the market to see what kinds of bids are out there. They’re not selling because they have to move, Martin said, they’re seeing whether they can turn a profit.”

“During the week of May 9 to May 16, there were 237 foreclosure filings in Connecticut courts, according to The Warren Group. New Haven County had the highest number of new filings that week, with 77. Hartford County had 65 and Fairfield County 46.”

The New Haven Independent from Connecticut. “When they knocked on the door of L & S Mortgage, Delroy Reid and Debra Willoughby just wanted to buy a home. After getting lured into buying a broken-down house through an alleged mortgage fraud scam, they found themselves knee-deep in sewage - and debt. The unwitting first-time homebuyers have gone to court to try to recover.”

“‘We got suckered,’ said Willoughby, a heavyset mother of nine struggling with cancer and unemployment. She was brought to the point of tears as she recounted how she and her partner, two low-income, unsophisticated first-time homebuyers, got swindled into buying a home they would never have wanted for a price they could never afford.”

“Jan. 18, 2006, the couple signed a Purchase and Sale Agreement to buy the Hobart Street home for $395,000. ‘We were really happy,’ recalled Willoughby. ‘I was like, oh my God, I really got a house!’”

“On April 17, 2006, just before the closing, L & S told Reid the home was not available, but he could have 192-194 Winthrop Ave. instead. In an admittedly unwise move, the couple agreed to close on the home the next morning - without ever taking a look inside or seeing an appraisal.”

“As a result of the alleged false application, Reid got hooked onto a loan he would have no way of supporting…a subprime loan that stayed at $2,100 per month for the first two years, then ballooned - by over 50 percent - after the two-year mark.”

“The biggest surprise of all came when the couple entered the house. ‘As soon as you hit the kitchen, you had the biggest hole, and water leaking,’ Willoughby recalled. There was trash all over the house.”

“‘I was pissed,’ said Willoughby. ‘Look at this shit.’ The third-floor apartment had 25 violations disqualifying it from Section 8 funding.”

“‘It’s just a raggedy-ass mess,’ Willoughby said.”

“But the battle has been a losing one. The couple, both of whom are now unemployed, have failed to make mortgage payments since December. ‘The bank account went down, down, down, until there was nothing,’ Willoughby recalled. ‘We livin’ up in this house with stress. Stress, stress, stress, stress, stress.’”

“‘We would have been better sitting back in an apartment, not owning a home,’ she said. ‘They really took advantage of us, they really did.’”

The Boston Globe from Massachusetts. “MassHousing said yesterday it is teaming up with real estate agents on the weekend of May 30 to host home-buying fairs and open houses for properties listed at prices that qualify for MassHousing’s loan program for moderate- and middle-income buyers.”

“The agency makes loans for houses priced up to $428,000 in high-cost housing markets in Eastern Massachusetts, such as Somerville, Cambridge, Dover, and Nahant, and as high as $396,000 in communities such as Lawrence, Andover, and Boxford. In Western Massachusetts, the maximum price is $273,500.”

“The median price for a single-family house declined 8.4 percent in April, to $315,000, according to the Massachusetts Association of Realtors.”

“‘We’re going to have listing sheets right there for homes in the area that fall within the purchase price limits,’ said Thomas Gleason, MassHousing’s executive director.”

“During the housing boom, many low- and moderate-income buyers flocked to subprime mortgages that were aggressively marketed by loan brokers. But many could not afford those high-rate loans, and a record number of Massachusetts homeowners are now facing foreclosure.”

Gleason said that home buyer courses are filling up in the wake of the subprime mortgage crisis. ‘People are saying we’re going to do it right because we’ve seen what happens when we do it wrong,’ he said.”

“Sometime late next year, the first residents are expected to move into the brick town houses and contemporary Colonial homes built on what was once an airstrip for Navy A-4 Skyhawks flying training missions for the Vietnam War.”

“These newcomers are supposed to be pioneers in one of the biggest residential developments in Massachusetts, the transformation of the 1,400-acre South Weymouth Naval Air Station into SouthField, a trendy ‘urban village.’”

“But its long-awaited launch could hardly come at a worse time. As housing sales plummet across the country, no one knows whether this grand enterprise will turn into the next hot spot for young families or something closer to a desolate outpost in the woods.”

“‘You know the old saying, if you build it, they will come,’ said Robert W. Terravecchia Jr., the president of Weymouth Bank who served for two years on a commission overseeing the project. ‘Well, what if you build it and no one comes?’”

“In Concord, the developer of a luxury condominium complex completed last year auctioned off 25 of the 58 units after they failed to sell. In Braintree, the developer of another luxury condo complex completed last year auctioned off 10 units after just 12 of the first 24 sold, with the rest of the 304-unit complex still on the drawing board.”

“An LNR marketing study identifies the development’s biggest target audience as ‘upwardly mobile young adults migrating out of Boston, as well as Gen-Xers from neighboring communities.’ The study also features photos of a family picnicking and a gray-haired couple drinking coffee in a cafe.”

“‘We have our foot on the gas right now, and the feedback we’re getting back from the market now is we should not let up,’ said Kevin R. Chase, VP of LNR’s Northeast region.

“Houses will be sold at prices that Chase said are equal to or less than current market rates; 10 percent will be offered at more affordable rates under state guidelines. They will include 3,000-square-foot ‘golf homes’ near the links that will retail for about $825,000, 2,500-square-foot ‘garden courts’ with yards that will sell for about $687,000, and 1,000-square-foot condos that will sell for about $275,000.”

“‘The biggest impediment to this thing actually doing well is the economy: Can this particular region on the South Shore absorb that many homes over the next 10, 20 years?’ Terravecchia said. ‘It’s really not the best time in the world to be trying to sell brand-new construction.’”

The Boston Herald from Massachusetts. “In South Boston…a pair of high-powered local developers, after initially planning high-end condos, has shifted gears and will build 139 apartments on the former Cardinal Cushing High School site.”

“The decision comes amid a tough sales market for new condos, one that has seen other for-sale projects near North Station and in the Charlestown Navy Yard go rental.”

“The $61 million project takes shape not far from a pair of expensive condo high-rise projects. Slated to open in fall 2009, rents at the West Broadway apartment complex will range from $1,800 to $4,000 a month.”

“‘The city is really excited that there is new housing going up in this area,’ said Jessica Shumaker, a spokeswoman for the Boston Redevelopment Authority. ‘For many years nobody lived around the Broadway T station because it was primarily commercial.’”

The Long Island Business News from New York. “The number of personal bankruptcies on Long Island is way up in 2008, another sign that mounting mortgage defaults and the climbing prices of necessities like food and energy are taking a toll on locals.”

“Thousands of Long Islanders whose home prices have declined are finding they have little or no equity left in their homes to draw on.”

“‘When the economy is in recession, or even in subpar growth, all the borrowings that people made in the good times come back to haunt them,’ said Pearl Kamer, chief economist at the Long Island Association.”

“Many homeowners have turned to bankruptcy as a way to stall foreclosure filings, which jumped 11 percent on Long Island in the first quarter compared to the prior-year period.”

“‘You can literally file a bankruptcy case five minutes before the auction is about to go off and stop a foreclosure proceeding,’ said Pat Collins, chair of the bankruptcy law committee for the Nassau County Bar Association.”

From Reuters on New York. “As foreclosed properties stack up in up-market areas of Long Island, New York, one company is capitalizing by taking potential buyers around the empty homes.”

“‘People have been evicted, it’s a terrible thing,’ David Farrell, director of tourism of the Long Island Foreclosure Tours told Reuters TV. ‘But for the most part people have been out of their homes for six months, a year. The people who lost, lost a long time ago. Banks lost, homeowners lost. Now what we have are two people who can win.’”

“‘This is devastating to see how these beautiful houses, and up and coming neighborhoods can be so dilapidated, so gutted,’ said prospective buyer Cathy Germaine from Franklin Square, Long Island, who was on one of the tours.”

“But she said she was ’sick and tired of renting’ and was looking for a property to buy with her fiancee.”

“Among houses on the tree-lined tour was a $372,500 four-bedroom property in New Hyde Park which the previous buyer paid $475,000 for a few years ago, according to Farrell. Another with three bedrooms in the same neighborhood which went for $550,000 in 2006 is now on the market for $324,900.”

“Farrell said of the properties he was showing on Saturday the majority could be purchased for less than the cost to rent. ‘To me, that’s intrinsic value in real estate — when you can live in a house and every month your bills are lower than they’d be as a rental. It’s hard to lose if you’re a long-term purchaser and it costs less every month to buy than to rent.’”

The Associated Press on New York. “In the past, people who sold their own homes could pocket the commission that otherwise goes to a broker. But in today’s tough housing market, doing it yourself isn’t so easy.”

“‘Two years ago, homes were selling overnight, and all you really needed was a yard sign,’ said Steve Udelson, CEO of a resource site for buyers and sellers.”

“In Brooklyn, Sheryl Miller put her two-family house up for sale last summer. After living there for 10 years and making significant upgrades, she thought her first offer of $700,000 was too low. The house appraised at $800,000; her asking price was $750,000.”

“She decided to wait. ‘If I could do it again, I’d price it below $750,000, but try to keep it above $700,000,’ Miller said. ‘I should’ve priced more aggressively. I lost out on that opportunity.’”

“After three months with no other offers, Miller took it off the market. The dream of her family living life at a slower pace in Maryland will have to wait.”

The Press of Atlantic City from New Jersey. “The latest positive numbers for home sales and prices have divided real estate agents, ordinarily a group uniformly upbeat about the housing market.”

“Some doubt the numbers, even though they’re from their own association, and say it’s making it tougher to get home sellers to reduce their prices to more realistic levels.

“Kevin Dawe, a real estate agent in Northfield, said last week’s report that the median home price in the Atlantic City area rose 4.8 percent in the first quarter didn’t match what he’s been seeing.”

“‘As we talk to our sellers about the declining market we are actually facing and the fact that they have to be aggressive in pricing their homes if they expect to find a buyer, the statistics in your article are baffling and impact our credibility with customers,’ Dawe said.”

“To Eileen Raynes, an agent in Margate, the higher sales and price figures were a very welcome break from media coverage she described as ’standing on a corner screaming ‘Get your dead fish.’”

“Bruce E. Breunig Jr., broker in Margate, admitted that ‘we Realtors remain part of the problem. We blame the media for fueling the downturn and try to counterbalance it with our own positive spin.’”

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