The Housing Bubble

The Sierra Sun reports from California. “Since housing values went up for so long, lenders figured home buyers could keep up with mortgage payments since the equity in their homes would grow.
When housing prices went down, mortgage rates went up and homeowners were having a hard time paying mortgages they shouldn’t have received in the first place.”

“That left banks in a quandary, said Bill Ferrall, director of business relations for the Tahoe Lending Group.”

“‘One of their recourses is to foreclose, and that means they may have to improve the property if they are dealing with a disgruntled owner who might damage the home by pouring cement down the toilet or something crazy,’ Ferrall said.”

“Paul Spaulding, a Realtor in Incline, said he’s dealt with a few in the last year in Incline when homeowners go ‘upside down’ on a mortgage, meaning they cannot make payments any more.

“For Spaulding, handling these issues is still relatively new. ‘I actually wasn’t aware of it (short sales) before last year,’ he said.”

“Ferrall explained lenders are stuck because they don’t actually hold the value of the mortgage, which they sold to Wall Street investors.”

“‘The truth of it is they don’t hold the paper any more,’ Ferrall said. ‘I’d use Countrywide as an example of a lender who may have an interested seller and buyer but they aren’t in charge of the mortgage any more. So they have to go back to the guy who bought it on Wall Street to get the paper back, and by that time the buyer became tired of waiting and moved on.’”

From Portfolio. “To understand why the housing slump has been so deep and so prolonged, one could visit this California city, once called Mudville. A fast-growing bedroom community for San Francisco Bay area workers during the housing boom, Stockton stumbled badly when prices tumbled and the number of foreclosures rose.”

“Bruce Kern, a school administrator in San Joaquin County, lived in Stockton for 17 years, building up a sterling credit score and a steady record of making payments on a house he bought in 2000. After its value doubled, he refinanced.”

“That helped him put money down on a second home in 2006, for his mother who had just moved to town. His timing was terrible. He was soon paying two mortgages that had become worth much more than the houses. Neither home drew any buyers, so Kern chose to foreclose. He’s moving his family to a rented house.”

“‘I’ve always been responsible, so I thought we’d be stretched, but stretched for the right reasons,’ Kern says. ‘It didn’t go that way. It’s going to be very odd going from a homeowner to a renter. But, you know, it’s taken a whole lot of anxiety out of my life.’”

“When Tab Pestlin wife’s job relocated to the East Coast, he put his house on the market. He was surprised when his agent advised him to sell it himself. Pestlin tried, but in the end rented it out. Other neighbors have also chosen to rent rather than sell, he says, but one next door simply went into foreclosure, pulled out the appliances and walked away.”

“‘A lot of agents have pretty much given up on the situation out there,’ Pestlin says.”

“Lately there have been signs that the housing slump is spreading to nearby counties such as Sacramento and Merced, where homes for sale by banks more than doubled in May over April.”

“Martha Lucey says that when her credit-counseling company held a counseling workshop in Modesto recently, a thousand people showed up-three or four times as many as at workshops in Stockton. ‘The line was around the block and down the street,’ she says.”

From MSNBC. “Some houses have been damaged by angry, frustrated homeowners who lose their homes to foreclosure, according to Mark in Stockton, Calif., where the foreclosure rate is among the highest in the country.”

“‘This city has so many foreclosed homes that are trashed there is an ad on local TV offering up to $1,000 to people not to trash their home before they are kicked out of it,’ he wrote.”

“‘Vandals have been hitting the empty homes that have been affected by foreclosure in my area,’ wrote Gloria of Los Angeles. ‘With summer around the corner and kids out of school, I just worry about fires starting or other serious problems happening.’”

“‘My hometown is broke, and the devaluing of the property tax base is cited as one of the reasons,’ wrote Bill, form South Gate, Calif.”

“Some real estate agents report that when they do find buyers for foreclosed properties, lenders are so swamped they’re having a hard time answering the phone. One San Diego Realtor reported that agents have taken to getting up early to leave voice mail for lenders before their mailboxes fill up.”

The Ventura County Star. “Buying a home is a gamble in any market. But a Ventura home builder is trying to protect sellers from future market risk by making a bet of its own.”

“To push buyers off the fence, Row Park Associates, a California limited partnership doing business as Pacific Pointe Condominiums, is offering to protect the resale value of its new downtown Ventura condominiums for five years as part of a new financing program.”

“‘The value of the home would have to go down more than 15 percent from today’s values before our buyers would lose a dime,’ said Dawn Dyer, president of a real estate and brokerage firm representing Pacific Pointe.”

“Another 15 percent decline is unlikely, said Robert Kleinhenz, deputy chief economist with the California Association of Realtors.”

“For example, the median price for an existing, single-family detached Ventura County home has tumbled 30 percent from when it peaked at $711,000 in August 2006, to $497,000 in April, according to CAR. Condominium prices are generally lower.”

“‘I think we’re fairly close to the bottom,’ Kleinhenz said, noting that the market should be stable in five years, with appreciating values.”

“Still, the response has been lukewarm. ‘It’s not what I expected,’ said Harvey Champlin, general partner with Row Park Associates. ‘I expected a stronger positive response.’”

“Buyers have acknowledged that the incentive is a good thing, but it only has prompted one purchase, Champlin said, noting that the difficulty of securing financing seems to be an overriding factor.”

The Hollister Free Lance. “Real estate insiders say buyers are wearily reentering the market with prices too good to pass up. But after months of high foreclosure rates and dropping prices, they’re still cautious.”

“‘All that’s selling right now are good deals,’ said Roger Malech, a Realtor at Morgan Hill-based Intero Real Estate. ‘Buyers can take their time and only buy deals.’”

“Even with April 2008 median home prices in Santa Clara County down 13 percent from April 2007 to $615,000, sales volume is still down 28.3 percent from the same month last year. The median price of a Morgan Hill home in April 2008 compared to the same month a year ago was down 19.9 percent to $623,500.”

“The median price of a Gilroy home in April compared to a year ago was down 20.6 percent to $550,000. The median price of a Hollister home was down 36.3 percent to $372,500.”

“Ironically, now is the time to buy, says Susan Jacobsen, a Gilroy real estate agent. ‘I don’t know what they’re waiting for, but they’re waiting,’ she said of buyers still on the fence.”

“Up to 70 percent of South County homes with pending sales for May are foreclosed or are short sales, said Samia Reichel, assistant VP of Gilroy-based Chicago Title.”

“Jacobsen said she saw a positive change at a recent open house she held. ‘People looking seemed to be sincere,’ she said. ‘They were interested buyers.’”

“Reichel just wishes she were one of them. But after the past few months her industry experienced, she said she couldn’t afford to buy.”

“‘We all knew it was going to happen, but none of us knew that it would be this bad,’ Reichel said.”

The San Francisco Chronicle. “California home construction plunged 37 percent last month compared with year ago, as the glut of foreclosed homes and languishing real estate market dissuaded developers from breaking ground on new projects.”

“Single-family residences led the declines, dropping 52 percent from May 2007 to 3,531. ‘The turnaround isn’t here yet,’ said Alan Nevin, chief economist with the Sacramento trade group. ‘I’ve been traveling the state this month and see really no evidence whatsoever of construction.’”

“Christopher Thornberg, principal at Los Angeles consulting firm Beacon Economics, said last week that the market isn’t likely to reach bottom until at least the middle of next year. The overall Bay Area price will decline between 35 and 40 percent, about double the amount it has come down so far, he said.”

“‘When you do find bottom, you will not see prices immediately start to rise again,’ he said. ‘Housing markets don’t bounce, they splat.’”

The Sacramento Bee. “The California Building Industry reports…Yuba and Sutter counties have seen California’s steepest drop in home starts. From January through May, they’re down 77.2 percent from the same time last year.”

“The only regions close - both in the category of 70 plus percent drops - are our neighbors in Vallejo-Fairfield and Santa Rosa-Petaluma.”

“The Sacramento region (El Dorado, Placer, Sacramento, Yolo counties) has a 48 percent drop, roughly about the state average. Statewide, the BIA still predicts the fewest home starts for 2008 since it began keeping records in 1954.”

“And Monday, Alan Nevin, chief economist for the Sacramento-based home builder trade group, said prospects for ‘major recovery’ by year’s end looks less likely.”

“He put out a bullish forecast in January, saying the market would start to pick up in the second half of 2008. Now he’s scheduled a one-hour address Wednesday at the Pacific Coast Builders Conference in San Francisco. All bets are on eating crow and having to become a gloomier economist.”

Some housing bubble news from Wall Street and Washington. MarketWatch, “Home prices across 20 major U.S. cities have dropped a record 15.3% in the past year and are now back to where they were in the summer of 2004, according to the Case-Shiller home price index released Tuesday by Standard & Poor’s. Prices in the 20 cities are now down 17.8% from the peak two years ago.”

“Prices were lower in April than they were a year earlier in all 20 of the major metropolitan areas as tracked by the Case-Shiller index. Home prices surged in 2003 through 2006, climbing by a cumulative 52%, according to Case-Shiller. Since then, homeowners have given up half of their gains from earlier in the decade.”

From Consumer Reports. “The April index showed thirteen record low annual declines, and 10 of the declines were in double digits. Las Vegas and Miami continue to share the dubious distinction of being the weakest markets over the past 12 months returning -26.8% and -26.7%, respectively.”

“These two markets witnessed some of the fasted appreciation of the 2004-2005 period, rising 53 percent and 32 percent respectively.”

“The National Association of Realtors said than that the housing recovery was being hindered, in part, by what it called restrictive lending practices. It said it saw evidence of growing interest by prospective home buyers, but some are still having difficulty finding financing.”

From Bloomberg. “Three months after Fannie Mae and Freddie Mac won the freedom to step up home-loan purchases, the government-chartered mortgage-finance companies are doing what critics in the Federal Reserve and Congress had predicted.”

“Instead of using powers granted by Congress to buy jumbo loans for the first time, Freddie Mac and Fannie Mae are purchasing their own mortgage-backed securities, helping reduce losses, company filings show.”

“Since the rule change took effect in March, Fannie Mae has packaged $24 million of jumbo loans into securities, while Freddie Mac added $220 million, according to the Inside Mortgage Finance newsletter. In April, the companies spent more than $32.4 billion to buy their own instruments, regulatory filings show.”

“The slowness of Fannie Mae and Freddie Mac in injecting cash for new jumbo loans may have exacerbated the housing slump in markets including California and Florida, where prices have already fallen more than the national average, said Jerry Howard, president of the National Association of Home Builders.”

“‘Had they been quicker into the marketplace, they could have helped slow the downward spiral in housing prices,’ Howard said.”

“‘Fannie and Freddie are catering to low-risk homeowners with high credit scores and a lot of equity in their homes,’ said Dan Green, a loan broker in Cincinnati and Chicago. ‘I’m sure there will be some high-cost areas in the country that will benefit. They just don’t happen to be Florida, Michigan, California, Nevada.’”

From C-Ville.com. “Just a few months ago, Micah Davis, a broker for Mahone Mortgage, thought he had a deal done. He had run the customer’s numbers through Fannie Mae’s automated underwriting system, and the system had blessed the customer with an approval for a mortgage. Then came June.”

“That was the month when Fannie Mae updated its system, making mortgages harder to come by. Davis ran the same customer’s numbers through this month-the very same numbers-and the system spat out a ‘refer,’ meaning that Davis couldn’t do the loan.”

“‘Nothing had changed,’ says Davis. ‘I’m going to be able to do it because, until October, they’re honoring anything that was run before June. But all things being equal, it went from an approval to a refer.’”

“Two things are certain. The days of 100-percent financing-no down payment-are gone. And the baseline credit score you need for approval has risen sharply.”

“‘It is more difficult to qualify borrowers for loans these days,’ says Peggy Deane, VP of mortgage services for Member Options, which provides mortgages for the UVA Credit Union. Dean says the secondary markets, institutions like Fannie Mae and Freddie Mac who buy loans from originators, have tightened up their guidelines around the county.”

“‘Even a year ago, for credit scores in the 500s, I won’t say those loans were easy to come by, but they were certainly possible,’ Deane says. ‘That’s not the case today. We’re seeing a migration to a minimum of a 620 on more programs.’”

“Borrowers in Charlottesville do have an advantage over homebuyers in larger cities like Boston, Washington, D.C., and Phoenix, says Doug Adamson of Bank of America. Because of the slump in housing prices, many larger cities are considered declining markets. That label limits some loan options.”

“Deane says that generally people are going to have to have some money saved to buy a house now that 100-percent financing has disappeared.”

“‘And there’s going to be a whole lot more focus on how they manage their credit,’ she says. ‘For those who have the income and credit history to qualify, I’d say it’s just as easy as it always was.’”

“Societe Generale, the French bank buffeted by subprime losses and a rogue-trading scandal, said it will wind up a $4.3 billion structured investment vehicle in a move that will repay senior debt, but leave holders of the lowest-ranked debt with nothing.”

“SocGen moved the fund’s assets on its balance sheet last December and provided it with a liquidity facility to prevent a forced sale of its assets.”

“The bank said in a statement Tuesday that the liquidity facility is set to expire June 26 and that it’s decided not to renew it ‘in view of the current market situation.’”

The Post Crescent. “The latest data shows that there is no slowing in mortgage foreclosures across the nation. Wisconsin is not shielded from the problem, though it isn’t as dramatic as it is nationally, according to RealtyTrac.”

“‘The Federal Reserve has projections of a two-year window when things should start to level off,’ said Laurie Anne Lee, a credit counselor…banking industry veteran and former mortgage broker. ‘But there’s so many factors that go into foreclosures that I think 2010 is a conservative estimate.’”

“Lee believes consumers are facing higher debt loads because of increasing daily living costs driven by record gasoline prices, coupled with a weak economy and soft job market.”

“‘There’s more of a chance, people may begin to miss mortgage payments because they just can’t keep up,’ she said.”

“John Waite, owner of Full Spectrum Mortgage in Appleton, believes the financial community and Wall Street investors are the main culprits. He said mortgage-backed securities were popular investments because of their quick returns.”

“‘When this all started five or six years ago, someone needed a credit score of about 640 to get a loan, but by the time the hammer fell, lenders were offering 100 percent (loans) to someone with a 570 credit score,’ Waite said.”

From Las Vegas Now. “People in the valley are losing their homes to foreclosure at alarming rate. Now they are lashing out — destroying those homes before the bank takes over.”

“For more than a week, neighbors in a Spring Valley subdivision watched their neighbor go on a rampage. ‘This man was able to go berserk — throwing things around throwing furniture,’ said a neighbor.”

“On Friday, the man was seen throwing junk into his backyard. His neighbors say it’s nothing compared to what has happened over the past few nights, ‘Throwing things around — throwing furniture all over.’”

“It went from dumping boxes of junk into the backyard, to ripping cabinets off the walls. On Saturday, neighbors say a flood of water came gushing from the garage.”

“Tom Calabesea sells foreclosure properties. He says vandalism is happening more and more. He showed one home with everything taken, ‘Before they left, they took the oven, stove, dishwasher, microwave and sink.’”

“They also slashed the carpet, threw motor oil it and took the water heater. ‘They want to get even with the bank because they didn’t make there payments, if that makes any sense,’ said Calabesea.”

“Neighbors called the police on the man in Spring Valley, but because he still owns the home, they couldn’t to stop him. Real estate broker Tom Blanchard says disgruntled foreclosure victims are getting away with vandalism because there are so many foreclosures the banks can’t keep up with.”

From Fortune. “Builders constructed far more homes from 2002 until 2006 - the peak bubble years - than could possibly be absorbed by the normal growth in households.”

“As a result, the market is now swamped with one million new and existing homes for sale that aren’t occupied, and hence need to sell quickly. That’s a multiple of the figure in most downturns, and it testifies to the duration and girth of the bubble.”

“The key player in any recovery scenario is the first time buyer. When the first-timers are absent, the entire buying chain gets frozen.”

“Today, newbies are coming back. Why? For the first time in years, entry-level homes are affordable. Builders have slashed prices, and what they’re building tends to be far smaller than the McMansions of the boom, selling for far lower prices.”

“KB Home’s average selling price dropped to $248,0000 in its February quarter, versus $267,000 a year earlier. In 2006, KB’s basic model in Victorville, Cal., a former boomtown east of Los Angeles, took up as much as 3,800 square feet and sold for $328,000.”

“Today, its stripped down offering goes for $220,000, at less than half the size.”

“So the first time in a decade renters can carry the mortgage payments and taxes on a new house for what they’re paying a landlord. Call it the New Affordability.”

“One event has the potential to slow or even derail the recovery: A sharp rise in interest rates. If they rise to 8% or higher because inflation rebounds, it would take a far bigger drop in prices to make new and existing homes affordable.”

“The New Affordability is now in place. But if rates rise, we’ll have to establish a New New Affordability - at even lower prices.”

From Wave TV 3. “The slumping housing market is affecting how southern Indiana home builders are marketing their homes. The annual Southern Indiana Home Expo which highlighted homes $500,000 and up is now a thing of the past. Now, homebuilders are simply trying to get more homes seen — many less expensive homes.”

“When you talk to people in the new homes business, the conversation doesn’t get too far these days before you hear something like this: ‘I don’t think in the next 10 or 20 years you’re going to see houses at better prices than they are right now,’ says Mike Campbell, the chairman of the 2008 Southern Indiana Parade of Homes.”

“And some prospective home buyers are buying that. In the first three days of Southern Indiana’s first ever Parade of Homes, 6 of the 33 on display have already sold.”

“‘We’ve built homes in the $600,000 range, but our company has adapted to what the market has told us the need is for $130,000 and $135,000,’ says Bill Burns, owner of Aristocrat Homes (and) also a realtor.”

“Instead of picking one fancy subdivision to host a home expo and charge $10 a person like they used to, this year southern Indiana homebuilders are showcasing more modest homes from Jeffersonville to Georgetown and admission is free.”

“The struggle for realtors trying to sell existing homes continues. Compared to this time last year, home sales are down 22-percent in southern Indiana and down 21-percent in Louisville.”

From Fox 28. “The nation’s housing crisis is definitely being felt here in Michiana. Home sales in the area are down about 18-percent.”

“When Anne Farthing was searching for her new home the wide selection came in handy. ‘We were pretty particular about what we wanted and there were a lot of options out there for what we wanted, so it didn’t take us long,’ explained Anne.”

“Many buyers are getting a deal by taking advantage of foreclosed properties. Real estate agent Mary Dunfee says ‘Banks they want to move their inventory, so they’re pricing these homes to sell or these properties to sell within 30 to 60 days.’”

“On top of that, sellers desperate to get their home sold in the saturated market are offering special incentives.”

“In this market realtors say make sure your home is priced correctly and looking great. That’s advice Anne is taking now that she needs to sell her old home, but she also realizes it doesn’t hurt to have a back up plan.”

“‘We plan to rent it out if it doesn’t sell within the next couple of months.’ she shares. ‘I’m just hoping it sells that’s all I can ask for.’”

The Boston Globe reports from Massachusetts. “The spring housing market is shaping up as one of Massachusetts’ slowest ever. Home sales fell steeply in May, completing a three-month run of declines during the prime selling season for real estate. The number of single-family home sales that closed last month was the least for that month since the real estate downturn in 1990, according to Warren Group.”

“Continued sales declines also knocked house prices down further: The January-May price decline - 8.6 percent - was the biggest since Warren Group began collecting the data in 1987. ‘The market is still generally pretty terrible,’ said Alan Pasnik, Warren Group’s data analyst.”

“Condominiums have, to some extent, resisted steep price drops. Sales of condos plunged 29.6 percent statewide and 25 percent in the Boston-area in May, but the median price was virtually flat compared with a year ago.”

“‘They’ll get their decline, too. It has to happen,’ Pasnik said.”

“Farther out, in Northeastern Massachusetts the market is tough. Trisha Collins McCarthy, president of the Newburyport Association of Realtors, said it is extremely difficult to close a sale.”

“There are 419 active listings in the six towns in her association, but only 56 properties were under agreement as of last Friday - about 13 percent of the total. ‘They’re struggling,’ she said.”

The Cape Cod Times from Massachusetts. “Foreclosures on Cape Cod reached their highest level in at least 14 years last month, with 54 completed, according to a review of records from the Barnstable County Registry of Deeds. In May 2007, there were 22 foreclosures in the region, according to registry records.”

“Through the first five months of 2007, 73 foreclosures were completed. As the housing collapse deepened, the Cape saw 272 foreclosures in 2007. Last month’s foreclosures bring the total for the year to 209.”

“Not only are more people facing foreclosure, but they are also letting their situations become more severe by the time they seek help said Pam Parker, a mortgage foreclosure counseling the Housing Assistance Corp. in Hyannis.”

“In the past, she estimated, she was able to help more than 60 percent of her clients save their homes; today that number is closer to 15 percent.”

“‘The folks we’re seeing come in, their property value has declined dramatically - there’s no equity - so trying to save the property is almost not possible,’ Parker said.”

The Providence Journal from Rhode Island. “The 2008 State of the Nation’s Housing report that Harvard University’s Joint Center for Housing Studies released today says mounting job losses during the first three months of this year are ‘raising the risks of even sharper price declines and higher delinquencies ahead.’”

“‘Those parts of the Northeast that are losing jobs are going to take longer to come out of this,’ said the center’s director, Nicolas P. Retsinas. ‘I don’t think there will be a quick recovery.’”

“In Rhode Island, about 1 in 41 mortgages, on average, were in foreclosure during the fourth quarter of last year, the seventh-highest in the nation, according to the report.”

“So far this year, Rhode Island has lost 7,900 payroll jobs and the ranks of its unemployed have swelled to 41,100 in what economists say is the worst recession since the early 1990s.”

“Among other findings in the report: •Rhode Island’s high foreclosure rate is being fueled by its large share of risky ’subprime’ mortgages, which particularly appealed to buyers of rental properties seeking to cash in on the housing boom. Now, as house prices have declined, many of those properties are worth less than what the borrowers paid for them - prompting some investors to simply walk away.”

“The share of investor-owned mortgages in the Providence metro area (which includes Fall River) climbed as high as 17.4 percent during the third quarter of last year - more than double the national average, according to the report.”

“In Rhode Island, it would take 15 months to sell all the single-family houses on the market during the first quarter of this year, up from 11 months a year earlier, according to an analysis of data from the Rhode Island Association of Realtors and Statewide MLS.”

“The supply of multifamily houses in the state during the first quarter was 19 months, and the supply of condos was 22 months, the data shows.”

The New York Times. “A high level of homeownership used to signal a high level of stability. But Staten Island’s similarity to the broader United States holds true when it comes to the housing crisis as well, and foreclosures are on the rise in the borough.”

“While its homeownership rate is double that of the city as a whole - some 70 percent, versus 35 percent, according to 2006 census figures, the most recent data available - it is roughly the same as that of the nation as a whole.”

“‘Initially, the impact of this was very, very heavily in minority neighborhoods,’ said William Carbine, an assistant commissioner for neighborhood preservation at New York City’s Department of Housing Preservation and Development. ‘But it has since spread in a very big way into Staten Island. By Staten Island, I mean all of Staten Island.’”

“Mary LaPointe bought her three-bedroom house in 2001. She paid about $250,000, and put no money down. She was making $40,000 a year as a waitress and had a blemished credit history. As the value of her house shot up a few years ago, she refinanced at least three times, pulling out cash while taking ever-larger mortgages.”

“She says she used the money to put her three children through private school and send one son to college. ‘This house worked for my kids,’ she said.”

“Last year, she lost her job and by the time she found another one she had fallen behind on her mortgage payments. Now she has a $400,000 mortgage, but her house is worth less than that.”

“By the end of 2007, the median price for a single-family home on Staten Island had fallen $12,000 since its peak three years ago, according to the Furman Center for Real Estate and Urban Policy at New York University.”

“The median price for a single-family home in the borough rose to $427,000 at the peak of the housing market in 2005 from $224,000 in 1995, according to the Furman Center.”

“Wages, meanwhile, did not keep pace. According to the census, the median income for a household of four on Staten Island rose only $14,000 in the same period, to almost $62,300.”

“The North Shore of Staten Island, completed 113 foreclosure auctions in the first quarter, the second-highest number on a list of 56 areas in New York City, behind Jamaica, Queens, according to the housing department. The Mid-Island section was seventh, with the South Shore right behind it. Bedford-Stuyvesant in Brooklyn was No. 9.”

“‘One thing I found odd was the lack of sympathy people had for homeowners in this situation,’ said Diane J. Savino, a state senator who represents parts of Staten Island and Brooklyn. ‘People think, ‘I bought my house, and this would never happen to me.’ What people forget is that 20 years ago when you bought a house, they didn’t have subprime mortgages. The banking industry was a lot stricter.’”

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