The Housing Bubble

The San Diego Business Journal reports from California. “LandAmerica Financial Group Inc., the Richmond, Va.-based title company issued an internal memo to its San Diego employees June 12, saying it intends to reduce operations here, according to Peter Habenicht, VP of communications for LandAmerica. ‘The real estate market … presents a number of challenges,’ he said. ‘This is a down cycle, and we all understand down cycles are part of the industry.’”

“‘If you look at employment in the real estate sector of the economy, it’s down. The title companies would be part of that,’ said Alan Gin, a University of San Diego economist.”

“Coldwell Banker Real Estate LLC has reduced its metro San Diego work staff 38 percent from 300 agents in 2005 to 189 agents today, says Liz Piccolomini, manager of Coldwell Banker’s downtown and Mission Valley offices. ‘I think that everyone is curbing because a lot of agents can’t afford to stay in the business.’”

“To make ends meet, title companies are trying to pick up contracts with banks that are selling foreclosed properties, also known as real estate owned, or REO, properties.”

“‘That’s keeping us going,’ said says Lindsay Riddle, membership chair of the San Diego County Escrow Association, noting that foreclosures represent about 80 percent of her business. ‘That’s pretty much all there is right now.’”

“‘I think we had 80 refinance openings a month,’ said Riddle. ‘It’s gone down to one or two a month now. The refinance business … has been eliminated.’”

The San Gabriel Valley Tribune. “Coldwell Banker’s office at 300 W. Colorado Blvd. in Old Pasadena is preparing to close next month, and another location in La Ca ada Flintridge will be reduced to a satellite office, a company official said.”

“James Joseph, owner of Century 21 Ambassador in Whittier and Brea and Coldwell Banker Ambassador in Whittier, said his business has already absorbed 16 other real estate operations that have closed.”

“‘Everyone is closing because there aren’t enough transactions to support the overhead that offices have,’ he said. ‘The mood among Realtors is that this happened a lot faster and is a lot worse than people thought.’”

“Jerry Jervis, who owns Century 21 Jervis & Associates, closed down his Brea location early this year and moved most of the employees to another La Habra office.”

“Jervis said his company’s real estate transactions have fallen off by about 50 percent, a figure he says is about the norm for most real estate agencies in today’s market.”

“‘Right now we’re really cranking … but a lot of that comes from selling foreclosures,’ he said.”

“IndyMac Bancorp Inc. appeared to edge closer to a meltdown Friday as its stock fell to 75 cents a share amid concerns that a collapse could leave the Pasadena-based bank’s borrowers and depositors in the lurch.”

” ‘If the economy erodes further from here it will probably get worse for them,’ said Jason Arnold, an equity analyst. ‘I wouldn’t rule out receivership. My gut feeling is that they won’t pull themselves out of this unless something changes dramatically over the near term.’”

The Daily Breeze. “The South Bay’s real estate market had been relatively insulated from the worst of the region’s downturn. That changed in the past two months, with the median price of a single-family home sold in May at $675,000, down 6.6 percent over May of last year, according to the South Bay Association of Realtors.”

“In April, the median price dropped 10.6 percent, year over year, to $625,000, the association said.”

“‘The downturn in the real estate market over the past 18 months has hit many areas of Los Angeles County very hard,’ said Carol Olney, the association’s president, in a statement. ‘As has been the case in other declining markets, real estate in the South Bay remained somewhat insulated from the depreciation experienced in these other areas. This changed, however, over the past two months.’”

“The sales volume also dropped significantly. The median price for a single-family home was down 22.8 percent year over year in May, with an annual drop of 36.3 percent in April, the report says.”

The County Sun. “Last time real estate agent Linda Brechtel checked, asking someone to leave their home was not in her job description. But that’s just the position she found herself in when showing a recently foreclosed house in Ontario.”

“‘I have never done that before,’ said the agent in Corona. ‘But they were really nice about it.’”

“The North Baker Avenue home is owned by the bank now and has been on the market for a week at $207,000. And it’s not alone. Brechtel said that in a one-mile radius of the home there are 18 other bank-owned properties, many of which are short sales in the price range of $175,000 to $225,000.”

“‘That’s the trend now, short sales,’ she said. ‘Before foreclosing, the owner is asking the bank to take less money than what’s owed or the loan amount. If this doesn’t work the home is foreclosed.’”

From ABC 7.com. “‘Home swapping’ is a novel way for homeowners to get out of the home they’re living in without taking a financial hit on declining property values. Jerry Stussman is a longtime resident of Southern California and a veteran homeowner, swapped (a) home he owned in Thousand Oaks for a home in Virginia that he uses as a rental property. Now he’s considering swapping the Virginia home for another property, either in California or in another state.”

“Jerry took me to the home he bought about a year ago in Westlake Village. He was hoping to keep it, but since the real estate market has been on a downward spiral since, he’s changed his original plan. ‘We’ve got it rented now, the market has crashed on it, and because of that, we’ll probably swap it,’ said Sussman.”

From KSBY.com. “The California Association of Realtors shows May’s median price in North Santa Barbara County fell to $297,000. That is down 32.8 percent. However, sales volume soared 85 percent from May 2007.”

“‘For Sale’ signs are a familiar sight in Santa Maria, and as sellers struggle to survive in the current housing market, first-time buyers like Mark Ghenu are the silver lining. ‘We were in the market for a house. As the housing market crashed, it made it feasible for us to buy a house,’ Ghenu said.”

“The median price in San Luis Obispo County was just above $442,000, that is down 23.7 percent from May of last year. The number of sales was up more than seven percent. In South Santa Barbara County, where the median price was $1.2 million, down nearly 11 percent from May of last year. Sales volume there dropped by almost 17 percent.”

The Santa Cruz Sentinel. “Don’t expect the housing market to recover this year. Robert Kleinhenz, deputy chief economist for the California Association of Realtors, forecasts a turnaround next spring. He made that prediction Friday, speaking to 65 people at a luncheon sponsored by the Santa Cruz Association of Realtors.”

“Statewide, the number of sales has increased since late last year, but Kleinhenz doesn’t want to use the word ‘recovery’ until prices turn around. His figures show a 42 percent price drop in Watsonville from a year ago and 15 percent declines in Santa Cruz and Scotts Valley.”

“Many homeowners got mortgages they couldn’t afford. They didn’t make enough money to cover the payments, but they bought houses that were beyond their means using loans that didn’t require proof of income.”

“Analysts who expected a quick recovery were overly optimistic. ‘Everybody got it wrong,’ Kleinhenz said.”

“As for mortgages where initial payments don’t cover the cost, and debt grows rather than shrinks, Kleinhenz predicts that by the time borrowers must make higher payments, the economy will have improved, home prices will have risen and refinancing will be possible.”

The Oakland Tribune. “In one 1½-mile swath of Oakland surrounding Arroyo Viejo Park, residents have counted more than 150 houses and apartments in foreclosure. Many are abandoned and locked up. Many have foot-high grass growing around them and junk mail piling up at their doorsteps. Some have become havens for drug dealers.”

“‘We want to reclaim our neighborhood,’ said Annie McKinzie, a resident of Krause Avenue between 74th and 75th avenues, whose neatly landscaped house faces three foreclosed or for-sale homes.”

“One of these houses has had four sets of tenants in the past year, McKinzie said, but she added that some of the people may just have been using it.”

“In some areas, such as parts of 85th and 86th avenues, three or more foreclosed homes can be found in a single block. People living in this neighborhood used to find it difficult to obtain mortgages. Then, in the early to mid-2000s, mortgage lenders became very willing to lend.”

The Marin Independent Journal. “Some Marin real estate agents are turning to a higher power amid slumping home sales. The Marin Association of Realtors reports brisk sales of small statues of St. Joseph, the patron saint of real estate, since the association started selling the religious figurine at its San Rafael store a month ago.”

“Edward Segal, the agency’s executive officer, said the agency, which has sold 15 figurines, is believed to be the first realty association in the country to sell the item.”

“Realtor Susan Gordon of Pacific Union is a believer. Gordon, an agent for 18 years, bought statues on a whim with fellow agent Cathy Youngling a few weeks back. A day after the duo buried one at a Mill Valley home that had been on the market for six months, a buyer was found at an open house. Those buyers closed escrow this week.”

“‘We figured, let’s just give it a try. I mean what have we got to lose?’ Gordon said. ‘After that, we went back and bought four more. I couldn’t believe it that (the realty association) had these little statues here.’”

“Dianne Burford, who has worked at the Mission San Rafael Arcangel gift shop for two years, said the figurines are big sellers. ‘Real estate people will come in and buy four at a time,’ she said. ‘Other folks that have their homes up for sale will come up and buy them.’”

“The California Association of Realtors also sells St. Josephs statues through its online store. The association Web site notes, ‘In a changing market, Realtors can use all the help they can get to sell listings.’”

Readers suggested a topic on where the housing bust is headed. “Now that we may finally be heading into an economy-wide recession, will it become difficult for borrowers with good credit and a down payment to buy even if housing prices drop to affordable levels? In NYC and places like it, where land constraints limited overbuilding, affordable housing will attract occupants. But in places where supply boomed (or population is falling) prices might get really, really low.”

“Think of the 1940s and 1950s, when incomes were constrained and new housing boomed in the suburbs. It was possible to pay almost nothing for housing in many city and small town locations. This will raise some interesting political issues in the suburbs and exurbs. You’ll have less well off people able to live where less well off people were zoned out previously.”

A reply. “This happened in the last SoCal bust. I personally knew a number of ordinary engineers who were able to buy houses in Palos Verdes and Manhattan Beach without stretching too hard in the mid 1990s.”

One observed, “In the town of Bakersfield, I have been purchasing my house for 16 years, and the neighborhood is changing. All the homes have at least 4 bedrooms. I live in a cul-de-sac with only 6 homes, and two of them have lots of tenants (mostly field workers) and one is in foreclosure with squatters in it.”

“The neighbor across the street is trying to sell his home, it was put up for sale last week. I really feel sorry for him if he decides to leave it empty and move before it sells. The town is slowing down, you can see it all around.”

Another point, “The pace of sales has been seen to rapidly increase during stock market sell offs. I submit that increasing sales and accelerating price declines can go hand-in-hand under certain market conditions.”

One replied, “Couldn’t that happen if potential sellers finally realize bubble prices aren’t coming back and all head for the exits at the same time? You still need buyers to make this happen. How many would buy into a sharply declining market and would have the means to do so if so inclined?”

Another answered, “There are always buyers in a sharply declining market. They get a house for 15% below asking price and they thing they got a steal.”

“How quickly they find out that the 15% cushion of so called equity can evaporate in a heartbeat. They also remember that the house they just bought for 250k that they think is 15% below market once sold for 500k. They pull rib cage muscles from patting themselves on the back.”

The New York Times. “The euphoria is past. The era of rampant house flipping is gone. What was once a seemingly unstoppable climb in home prices has given way to a plunge in value in many areas. Yet, there is a bit of good news: This might be the right time to find a bargain, especially for buyers approaching their retirement years who can afford to take their time.”

“Of course, anyone looking to buy can also find good reasons to take a wait-and-see attitude, like the fact that good deals may not exist in every location, and no one really knows if prices will continue to decline.”

“‘It’s like missing the top of the market - it’s the same thing with the bottom,’ said Maurice Veissi, president of Veissi and Associates in Miami.”

“Franke Watson II, a 69-year-old retiree from New Orleans, purchased a home in Prescott, Ariz., in February for more than $100,000 below its initial list price.”

“‘The house had originally been listed for $430,000,’ he said. ‘When I looked at it, it was $349,000. I offered them $300,000 and we finally settled at $309,000.’”

“When he relocated to Prescott last July he decided to rent at first rather than buy. ‘I didn’t think the real estate market was where I wanted it to be,’ he explained. He finally purchased a three-bedroom brick ranch once prices came down to what he expected to pay.”

“Mercedes Gutierrez and her husband are looking for a second home where they will eventually retire. They currently live with their 9-year-old daughter in Cooper City, Fla., but would like to buy a home in the Keys to use as a weekend getaway until Mr. Gutierrez retires in a few years.”

“But so far, prices haven’t fallen into the $500,000 to $520,000 range they hope to pay for a three-bedroom home on the ocean side of the Keys — ideally on a canal, since Mr. Gutierrez plans to spend some of his free time fishing.”

“‘We’ve found a few things, but at the same time we’re not in a hurry because we have time on our side,’ Ms. Gutierrez said. ‘We’re playing the waiting game to see how much people will drop their prices.’”

From Business Week. “When home values fall low enough, hard-pressed homeowners become less able or less willing to keep paying their mortgages. That forces lenders to repossess homes and then dump them back on the market at fire-sale prices, which depresses prices further and leads to even more foreclosures. That process has already started in parts of Arizona, California, Florida, and Nevada.”

“The drop in those markets ‘is being fueled with jet fuel,’ says James L. Smith, executive VP for portfolio services at Fiserv.”

“His unit works with borrowers to restructure delinquent mortgage loans. Smith worries that instead of settling at a reasonable price level, ‘we’re going to blow past [it] without even looking back.’”

“Some economists and politicians say that the effects of the housing bust will be modest and that low prices will attract new buyers. ‘We’re seeing people go into the market that weren’t there before,’ says Alfred A. DelliBovi, president of the Federal Home Loan Bank of New York.”

“Still, the housing optimists have systematically misjudged the market. Some became convinced that the huge runup was justified by fundamentals such as population growth, rising incomes, and land scarcity. And because sharp national housing price declines are so rare in U.S. history, analysts assumed that prices would, at worst, flatten out for a few years.”

“What they forgot was that markets can overshoot on the downside just as easily as on the upside, with both financial and psychological forces feeding the decline.”

“Naturally, this state of affairs is working out for buyers with ready down payments, such as George Farraye, (who) just paid $359,000 for a 3,500-square-foot house in Murrieta, Calif., that sold for $630,000 in 2006. Farraye says tighter lending standards ’shook out all the riffraff.’”

“At the same time, the fall in house prices is so precipitous that it is changing homeowner psychology, eroding the long-held taboo against walking away from a home. In hard-hit markets such as Las Vegas and Phoenix, many homeowners are beginning to conclude that their home purchase comes with a ‘put option’-the right to hand the keys back to the lender if things don’t work out.”

“Fiserv’s Smith, whose unit began handling loan modifications for Countrywide Home Loans in May, attributes the rise in walkaways to ‘the ticked-off factor.’ Even homeowners with high credit scores feel cheated that they’re paying more than they can afford for a house that is worth far less than the debt on it, he says.”

“Steve Hawks, owner of (a) real estate agency in Henderson, Nev., says he has been flooded with calls from people interested in ‘buying and bailing’-that is, buying an additional house while their credit is still good, then walking away from the old one unless they can cut a favorable deal with the lender.”

“Kim, a Las Vegas bartender, says she and her husband are about to purchase another house in Las Vegas, move into it, and then try to get the lender on their old house to erase their mortgage for whatever they manage to sell the place for-a so-called short sale.”

“Says Kim: ‘I’m going to lose the house no matter what. I just want to make sure my family’s set, taken care of.’”

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