The Housing Bubble

Bloomberg reports on California. “Almost $1.3 trillion of homeowner equity was lost in California since home prices peaked in December 2005, said Mark Zandi, chief economist at Moody’s Economy.com. ‘California is having a wrenching decline in wealth, but this is a cathartic event that will lay the foundation for a recovery,’ said Zandi in an interview. ‘This signals the beginning of the end.’”

“Foreclosure sales accounted for 75 percent of June’s total in Merced County, home to the Merced metro area with the country’s second-highest foreclosure rate; 72 percent in Stanislaus County, home to the Modesto metro area with the third-highest foreclosure rate; and 66 percent in San Joaquin County, home to Stockton, data from DataQuick and RealtyTrac show.”

“Sales of foreclosed properties equaled 63 percent of the total in Sacramento County, 62 percent in Riverside County, 58 percent in Solano County, 57 percent in San Bernardino County and 49 percent in Contra Costa County. Prices dropped as much 37 percent in those counties, DataQuick reported.”

“Bruce Norris, president of the Norris Group investment firm in Riverside, said he purchased foreclosed properties for one- third of the outstanding loan value during the past two months.”

“Norris bought a three-bedroom home in the Moreno Valley section of Riverside for $106,000, a 65 percent discount on the $300,000 loan held by Bear Stearns Cos., now part of JPMorgan Chase & Co. He got a 61 percent discount on a home with $258,750 in loans held by Deutsche Bank AG, and a 63 percent discount for a home with $324,000 in loans held by Morgan Stanley, he said.”

“‘The banks are stuck wholesaling to people like me,’ Norris said. ‘They are starting to move product faster than the market would normally allow.’”

“The housing bill signed by President George W. Bush yesterday is intended to stem foreclosures. Homeowners like David Imig and his wife, who live in the Stockton area and owe more than their house is worth, aren’t helped by the bill. They paid $462,000 for a three-bedroom at the market peak in 2005. Now, their neighbor’s foreclosed home is on sale for half its original price.”

“‘We’re a good $100,000 down,’ Imig said. ‘If we could move without taking a huge bath, we would.’”

“Peggy Thorpe outbid seven offers for a foreclosed house in Vallejo, east of San Francisco, and still got a 34 percent discount. It was the sixth time since May she made an offer for a home in foreclosure.”

“‘This time I jumped higher,’ said Thorpe, who works at a vineyard in Napa and paid $190,500 for the three-bedroom home with a loan balance of $289,000. ‘There’s an extreme bidding war right now.’”

The San Francisco Chronicle. “The new law aims to help 400,000 homeowners with new guaranteed mortgages. Yet it remains unclear how many lenders and borrowers will participate. Lenders must write down mortgages 15 percent below a home’s current market value.”

“‘Those are all wild estimates,’ said banking consultant Bert Ely of the numbers of homeowners who may be helped. ‘It may have some effect at the margin, but you’re still going to have lots of homes go into foreclosure.’”

“Some lenders may choose foreclosure, and many homeowners have what are now known as ‘liar loans,’ made with no income documentation, and may not be able to afford even reduced-rate loans, along with the taxes, insurance and maintenance costs that accompany home ownership. ‘A lot of people will find out they’re better off renting, no matter how good a deal they’re cut,’ Ely said.”

The Union Tribune. “San Diego cities and the county are expected to receive several million dollars from the housing bill to buy foreclosed homes and resell them to needy families. But with $4 billion to be allocated nationwide through the Department of Housing and Urban Development’s community development block grant program, local officials said the effort will not be nearly enough .”

“In the first half of the year, nearly 8,500 homes were foreclosed on in the county, according to DataQuick Information Systems. If area agencies received $2 million in the program, that would be enough to buy and rehabilitate eight homes at $250,000 each.”

“‘A few million dollars is not going to do much in this market,’ said San Diego City Councilman Tony Young.”

The Daily Breeze. “A UC Irvine study released today shifts blame for the housing collapse from sub-prime lending to the use of aggressive, private mortgage securities that followed the reduced role of traditional mortgage backers Fannie Mae and Freddie Mac.”

“The study by the UCI Paul Merage School of Business Center for Real Estate ties the start of what became a massive real estate bubble burst to the 2003 pullback of the government-sponsored financial service corporations from the credit market and the change in the prevalent source of mortgage capital.”

“‘We were quite surprised to find the intensity of sub-prime lending was insignificant after controlling for all the other factors influencing the market, but we were really blown away when Fannie’s and Freddie’s continuing presence in the market was shown to be so important,’ said Kerry Vandell, a UCI finance professor and director of the Center for Real Estate.”

“The researchers found that rising home prices up to 2003 could be explained by economic fundamentals, such as low unemployment rates, expanding household incomes and population growth. Those factors fueled housing demand and, in turn, increased U.S. home prices.”

“But in 2003, certain factors caused the two entities to significantly slow their lending volume, including accounting irregularities that led to the resignation of senior officers and the capping of their retained loan portfolios.”

“Private funding stepped in, in the form of asset-backed securities and residential mortgage-backed securities, while a new credit environment allowed looser underwriting standards and increased tolerance for riskier, high-yield loan products that included adjustable-rate mortgages with low initial ‘teaser’ rates, Vandell said.”

“The climate gave formerly marginal borrowers greater access to credit, leading to a record increase in total mortgage volume and pushing up home prices with momentum that is characteristic of a bubble, the UCI team said.”

“The researchers also found that interest rates did not significantly affect housing prices, also a divergence from conventional wisdom.”

“‘These finding help us understand that the government can have a major role in affecting the mortgage and housing markets,’ Vandell said. ‘It’s important policymakers consider this influence when they attempt to shape the markets in the future.’”

The Press Enterprise. “Saying that loans to borrowers with poor credit is the reason for the bubble bursting is like blaming the tail for wagging the dog, says a study led by the Center for Real Estate at the UC Irvine Paul Merage School of Business.”

“‘The real problem is that all the stops were pulled out, allowing the private issuers to run amuck,’ said Vandell.”

“John Marcell, president of the California Association of Mortgage Brokers Education and Research Foundation, agreed that the housing crisis might not have occurred if Fannie Mae and Freddie Mac had been more active. That would have been possible, he said, if their loan limits had been lifted as they were Wednesday by the housing stimulus package signed into law by President Bush.”

“‘Had Congress listened to the real predicament that was forthcoming and had raised the loan limits back then and let Fannie and Freddie do their job properly, we would not have the problem we ultimately experienced,’ he said. ‘Because we opened up the flood gates of this loosey-goosey lending … we enticed people to become homeowners who were not in the position to do it.’”

“Vandell said Fannie Mae and Freddie Mac were ‘victims of circumstances’ and had no choice but to let private mortgage lenders take over the field.”

The Bakersfield Californian. “A local accountant’s signature was forged to help David Crisp’s wife get a loan in 2006, according to testimony Wednesday in the ongoing license hearings of former Crisp & Cole Real Estate principals Crisp, 28, and Carl Cole, 61.”

“Certified public accountant Timothy Hubbell of Bakersfield took the stand to answer questions about a letter dated September 2006 apparently bearing his signature. The letter was actually written by his former business partner, Kevin Sluga - Crisp’s father-in-law - Hubbell said after giving testimony.”

“The state’s attorney, Michael B. Rich, asked Hubbell if the signature was his. ‘No,’ Hubbell said. ‘Did you write that letter?’ asked Rich, who is representing the California Department of Real Estate in the administrative hearing. ‘No, I did not,’ Hubbell said.”

“The letter was in a 2006 loan file of Jennifer Crisp, David Crisp’s wife, submitted to Aegis Wholesale Corp. for what would be $475,000 worth of loans she received to buy 12706 Lanai Ave.”

“The letter was included in the file to clarify Jennifer Crisp’s supposed employment at California Business Solutions, a bookkeeping and accountancy firm co-owned by Sluga, her father.”

“Hubbell also testified the employment claim in the document, written on company letterhead, was false: Jennifer Crisp had not worked at the company for two years, as the letter claimed. She had never worked there, he said.”

“Later, Hubbell testified that Leslie Sluga worked a couple of days a week at California Business Solutions doing bookkeeping. She earned about $8 or $9 an hour, he said, bringing in about $400 a month.”

“In other loan files, the hearings have shown, Sluga claimed she had been a co-owner of the business for 15 years. Hubbell said after the hearing her income was stated as $40,000 a month in some loan applications.”

The Ventura County Star. “A Ventura-based builder appears to have fallen on hard times, and its state license is at stake. R.W. Hertel & Sons Inc. has disabled its Web site and put its building up for sale.”

“R.W. Hertel has a long history of accusations concerning defective building. In 2005, for example, residents complained of water leakage at the Rancho Obispo subdivision in San Luis Obispo County.”

“Presently in Stanislaus County, R.W. Hertel is facing a $250,000 fine for storm water damage violations in a subdivision that is home to several endangered species. In another sign of money woes, R.W. Hertel has ceased construction on a $25 million hotel and condominium resort project in Oregon.”

The Valley Voice. “Centex Corp. is relocating its Central Valley regional office from Visalia to Sacramento in a consolidation move that will mean many more lost jobs locally. After several rounds of layoffs in the past six months, a new round eliminated about 20 jobs in Visalia a few weeks ago, say sources familiar with the company.”

“The company eliminated chief planner for new projects, Cliff Ronk’s job, among others. Now, the company has put its big 50,000-square-foot regional headquarters on Akers up for sublease.”

“In addition to shutting down the regional office, sister company CTX Mortgage will be closing its retail office here at the end of August after a potential sale to another company didn’t happen.”

“Centex has been Tulare County’s largest builder for decades but its volume is less than a third of what it was just two years ago. Centex used Visalia as a regional office since it bought the operation of Andy Mangano in 1991 and expanded year after year in the number of subdivisions and towns it built in the Central Valley.”

“The big builder became a major employer here. For years, it was the busiest division for the Dallas-based builder in the state.”

“Centex moved to a vacant space in the big 150,000-square-foot Cigna Insurance building on Akers only a year ago, consolidating scattered offices into one location. Centex leased 50,000 square feet of the building that it now wants to sublease.”

“But a year later, the collapse of the new home market in California has apparently convinced Centex, like other builders, to pull up stakes here.”

The Sacramento Bee. “If you’re seeking ground zero of the real estate collapse, go no farther than Laguna Ridge. Four years ago, this 1,900-acre swath - characterized as Elk Grove’s ‘crown jewel’ - was master-planned for 7,767 homes. Roads, utilities, parks, and a new high school are all in place.”

“But the downturn hit so hard and so fast that only 310 houses have been sold so far. Thousands of phantom houses lend a surreal air to Laguna Ridge. Perfect residential streets with shiny nameplates wind through fields of waist-high grass. There are many speed bumps - but no cars. On Winkle Court, near a row of pristine model homes, the one sign of life is a jack rabbit streaking across the road.”

“No child plays at Constellation Park, despite tempting climbing structures, green grass and bright red picnic tables. The little park is encircled by a chain link rent-a-fence. Two blocks away, 15 occupied houses on Collie Way stand isolated on the lonely frontier of Laguna Ridge.”

“Among these pioneers are Chris and Jene Claude and their two kids. The Claudes say: If you’re seeking a sweet home and a great deal, go no farther than Laguna Ridge. ‘Right now, it is a little sparse around here,’ conceded Chris Claude. ‘But that makes the neighbors closer.’”

“Their house, 2,300 square feet with four bedrooms and two full baths, cost them $400,000 - probably about $125,000 less than they would have paid at the market’s peak. The Claudes aren’t worried about the paucity of neighbors in Laguna Ridge - they will come, they say. But they are irked by one facet of living in a 1,900-acre vacant lot.”

“‘The only thing that really bugs us is the fence around that park!’ the young mother said. ‘It wasn’t so bad when it was just an overgrown patch - but now it’s finished and the kids can’t get in.’”

“Real estate attorney John Hodgson represents developers who control about 90 percent of Laguna Ridge. ‘The bottom line is that this project got approved in 2004 when the market was at its pinnacle,’ Hodgson said. ‘With the delays of the city both before and after adoption of the plan, the fact is that this development missed the cycle.’”

“‘It breaks my heart,’ said Kathryn Boyce, a Northern California real estate analyst for Hanley Wood Market Intelligence. ‘Laguna Ridge would be perfect - a shining star. But the market crashed so quickly and deeply that it didn’t happen.’”

“Still, Boyce is a believer in real estate cycles. She sees pioneers like the Claude family as simply ahead of the curve.”

“‘If they just bought, they got a great deal and they’re in on the ground floor,’ she said. ‘The housing market will come back with a roar. At Laguna Ridge, all the infrastructure is in place and you’ll see a ton of houses all opening at once. It’s poised to come back like wildfire.’”

WPTV reports from Florida. “The ‘For Rent’ sign is hanging in more and more places these days, as homeowners open their doors to strangers to help close their budget gaps. ‘Everything’s here. Ready to move in and very comfortable,’ said homeowner Gary Friedman. He’s now turning his guest room into a rental. Friedman is offering everything, right down to linen sheets. ‘Were ready to have somebody move in here and go to sleep immediately,’ said Friedman jokingly. ‘Be comfortable.’”

“He and his partner of 27 years are looking to boost they’re monthly income by $650. They’ve been watching as their Lake Worth home struggles to sell, at a time when money is tight.”

“‘I think within hours of us purchasing this house, everybody stopped buying houses,’ said Friedman. ‘Everybody said ‘Thats it.’”

The Associated Press. “New figures out Tuesday showed home prices fell by a record 15.8 percent in May from a year ago. In fact, nine cities posted record declines, including Miami near where Sharon McKenney, 55, and her husband are trying to sell their four-bedroom, waterfront home.”

“They were asking $550,000 for their home in Palmetto Bay, a bargain, McKenney thought, compared to neighboring properties listed around $625,000. But there have been no offers, so they cut the price to $545,000.”

“‘I’m frustrated, however I still feel like it’s priced very well, and I don’t see myself lowering it,’ McKenney said. ‘The thing of it is, there’s so many (homes) on the market, people keep thinking, if they keep looking they’ll find something better, something cheaper.’”

The News Press. “The housing bill signed by President Bush on Wednesday won’t help Southwest Florida homeowners hit hardest by the economy. ‘This is one of those feel-good government intervention programs with only a marginal real impact,’ said said Charles Costello, a mortgage broker in Fort Myers.”

“The new loans do have strings, including required mortgage insurance and stipulations against taking home equity loans.”

“‘For five years you’re allowed no home equity loans, and which average family doesn’t need a home equity loan for liquidity?’ said Fort Myers-based bankruptcy attorney Charles Phoenix. Regulations will also have to deal with the issue of existing home equity lines, he said.”

“In addition, any homeowner in the program who sells his home within five years must share any profit with the FHA based on a sliding scale. ‘What’s the point of owning your own home when you can’t benefit from the profit? You’re probably better off renting,’ Phoenix said.”

“Fort Myers resident John Lee is baffled his city property taxes will not drop as much as he had expected. ‘It doesn’t seem like that much of a decrease considering the fact that our property values have declined a lot more than that,’ said Lee.”

“The average resident will end up paying the city about the same as last year. ‘My feeling is they’re going to get you one way or the other,’ said Lee, who bought his house in 2005.”

The Naples News. “David Farmer, assistant chair of ULI Southwest Florida and principal of Keystone Development Advisors, LLC, said a significant amount of the sales he has seen in recent months are investors buying several properties at once.”

“Farmer emphasized just how low prices have dropped. A three-bedroom house in Golden Gate Estates, with two bathrooms and a two-car garage, recently sold for $74,000, he said.”

“‘You could not even begin to build that house for three times that, but yet it sold,’ he said. ‘That’s going to continue on.’”

The St Petersburg Times. “Deeply in hock to banks in the housing downturn, Tampa’s Smith Family Homes has gone out of business, ending a 10-year run for a family partnership that raised rooftops in some of the region’s premier communities.”

“Smith Family was stuck holding lots and finished homes worth less on the market than was owed to the bank, said Scott Stichter, the company’s bankruptcy lawyer. A last-minute deal with an investor to infuse more cash into the business fizzled.”

“Some recent home buyers are receiving certified letters from contractors unpaid by Smith. They include Dominic DeQuarto, who closed on a Smith home on April 29 in Pasco County’s Grey Hawk neighborhood. Work interruptions plagued the project, DeQuarto said, and now he’s getting lien notices from various carpet installers, concrete guys and stucco contractors.”

“‘This was the most stressful process for building a home ever,’ DeQuarto said.”

“In its quest for financial health, the Tampa Bay area home building industry is grappling with a giant scab on the landscape: 31,900 vacant home sites waiting for buyers.”

“New-home closings in the region fell 42.6 percent this spring vs. the same time last year. But that’s nothing compared to the glut of vacant lots, enough home sites to last builders 51/2 years at current sales rates.”

“Hillsborough County’s supply is 49.6 months, or more than four years. Pasco and Pinellas counties have nearly five-year supplies. And Hernando County’s lot supply is 136 months, or 11 years.”

“It gets worse: Citrus County has a 508-month supply. At current sales, it would take 42 years to burn off all its finished home sites. Citrus’ new-home market has fallen off a cliff, with only 95 homes starts in the past year amid a surplus of 4,018 developed home sites.”

“In a glimmer of good news on the lot front, developers have largely ceased paving former cow pastures, orange groves and forests. ‘Hillsborough finally stopped adding lots this quarter,’ said Tony Polito, who compiled the new-home report. ‘The other counties stopped adding lots months before that.’”

“Up and down State Road 54, from Trinity to Wesley Chapel, the economic trend becomes evident: For lease. For sale. For lease. For sale. Those signs are not for houses. They are for office space.”

“‘There’s a lot of office space out there,’ said Matt Shaw of Prudential Commercial Real Estate. ‘It’s a tough time to be a landlord.’”

“Investors with plenty of money had seen the housing boom and figured they could turn a profit with professional office buildings to support the residential growth. ‘We’re in a position we’re in now because money was so easy to get,’ said Johnny Wild, owner of Wild Realty & Investment. ‘At a time, it was a frenzy.’”

“But millions more square feet of office space are in the project pipeline. And even some real estate agents, who tend to emphasize the upside of building trends, say they are surprised by how much office space continues to come on line.”

“‘I can’t believe they’re still building,’ Shaw said.”

From TC Palm. “Residential builders in the largest and most populous county of the Treasure Coast slowed the pace of new home construction to match the downturn of demand. Metrostudy found that construction began on only 60 single-family homes in St. Lucie County, down from 95 in the first quarter.”

“A total of 286 units were under construction at the end of the quarter, the lowest number since the second quarter of 2001. There were 918 finished vacant units in the county at the end of the second quarter versus the end of the first quarter.”

“Jack McCabe, CEO of McCabe Research and Consulting, said builders in St. Lucie County have cut back because of exorbitant levels of inventory. ‘It makes no sense for them to build on a speculative basis,’ McCabe said. ‘Building like they did in the boom years is a recipe for disaster.’”

“‘The low-end and the high-end homes are doing OK. It’s the middle-priced homes that are really getting murdered,’ said Don Santos, past president of the Treasure Coast Builders. ‘The problem now is finding creditworthy buyers willing to buy new construction.’”

“The Indian River Realtors Association reported 137 existing single-family homes sold in June, down from 154 in June 2007. At the same time, the median sales price of those homes was $160,000 in June, down from $255,000 in June 2007. The median sales price for condominiums fell from $287,500 to $152,000 year to year.”

The Orlando Sentinel. “An Orlando real estate agent arrested this week has been charged with mortgage fraud and grand theft. Orange County Sheriff’s detectives said Garry S. Martin, 35, forged signatures on various documents and wired home-sale proceeds to bank accounts that he controlled. Investigators said the fraudulent sales in 2006 involved one sale that netted $172,804 and another one that totaled $253,484.”

“Martin, a licensed real estate broker, was taken into custody at his office on Monday and booked into the Orange County Jail.”

The News Journal. “More than two dozen potential condominium owners have filed lawsuits in circuit court against one of the area’s newest developments — Halifax Landing on South Ridgewood Avenue in South Daytona — and more may be coming.”

“The 26 complaints, filed since mid-May, allege the developer significantly changed the project between the time units were reserved and contracts signed in 2005 and 2006, and when units were recently finished and buyers asked to close. Buyers want out of the contracts and deposits refunded. The first two units were closed earlier this month for $420,532 and $547,000.”

“‘The lawsuits are not unique to Halifax Landing. It’s happening all over the state since the market fell,’ said Scott Cichon, representing Halifax Landing. ‘The investors, flippers and speculators bought several years ago to make a profit reselling them. Now, they want to shift that risk back onto the developers. But they signed contracts and are not willing to take their lumps like everyone else.’”

“The contracts are void, however, because the changes are ‘material’ and ‘adversely impact’ the buyers, two legal standards required to break a condo purchase contract, said attorney Ben Zaeri, representing 10 clients suing Halifax Marina.”

“‘When you buy a Mercedes, you don’t want an Escort,’ Zaeri said. ‘It’s no surprise the real estate market has tanked, but that is not the motivating factor. My clients, for the most part, wanted to move in and get use of the property.’”

The Dunfermline Press. “Steven Pagdin (26) and his wife Alana (27) put their semi-detached house on the market over a month ago but have not had any viewers for the property, which is available for offers over £115,000.”

“Steven has even thrown his car into the deal - a three-year-old Mazda6 - in an attempt to sell the house by September, when he is due to start his new job in Panama City, Florida.”

“A designer in the oil and gas industry who currently works for Oceaneering Multiflex in Rosyth, Steven has secured a job with a sister company in America. ‘But,’ he said, ‘unless I sell my house, we can’t go. We have already agreed to go over to Florida to live. We have got our visas and everything else. It’s just a case of hoping the move isn’t going to be scuppered because we can’t sell the house.’”

“Last week, the Press reported on the major impact that the credit crunch and housing market slump are now having on home construction and sales in West Fife, with job losses in the building trade already reported.”

“Steven, of Birrell Drive, wondered, ‘Is the credit crunch affecting the way people are thinking? Are they thinking that the housing prices are going to crash? I don’t know. It’s usually quite a popular estate but for some reason the houses round here just aren’t selling.’”

“‘I suppose you would have to eventually lower the price but there’s got to be a cut-off. If you’re having to knock off too much it might not be worth going over (to America) in the first place,’ he said.”

“The couple, who were due their second child on Tuesday, bought the house five years ago when the market was more buoyant and houses were snapped up within a matter of days. Steven explained, ‘We went to view the house on the Friday night, put an offer in on the Monday and the house was sold on the Tuesday.’”

“‘Now it seems to be that people are wary of buying a house in case the value comes down the next month and they lose £10,000 on the house they’ve just bought,’ Steve said.”

“Alana added, ‘We’re a bit stressed out about it. They want us over in America as soon as possible.’”

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