The Housing Bubble

It’s Friday desk clearing time for this blogger. “Surprise, like nearly every city in the Valley, is seeing its neighborhoods and home values wracked by foreclosures. Rochelle Swenson bought her Legacy Parc house for $300,000. Now, she said, it is worth only about $195,000. Amid predatory lenders and mixed messages, options can get confusing, she said. ‘I’ve got people coming up to me, and I don’t know what’s right and what’s wrong,’ she said.”

“Arizona Treasurer Dean Martin said Arizona is facing hard times due to a combination of factors. What made matters worse with the Arizona economy, Martin said, was the popping of the housing bubble.”

“‘The guy who parties the hardest will have the biggest hangover,’ he said. ‘We estimate 67,000 homes were built in Arizona that didn’t have population living in them. Basically, we built a ghost town.’”

“Martin said the state should take measures in the face of a slow economy. Any new course, he said, is better than the one the state’s on right now. ‘When you’re in a hole, stop digging,’ he said.”

“Two residential developments are under way in Van Buren as the city tries to regain ground during the housing market slump. Having a residential subdivision that includes higher-end homes likely will mean slower development, but (developer) Jan Whitt said he believes builders are ready to get back at it.”

“‘We’re starting to see a lot more interest, and I anticipate builders coming in with the next three or four months and building some (speculative) houses,’ Whitt said. ‘Their inventory of spec houses is slowly going down. That’s what they do for a living is build houses.’”

“U.S. foreclosure filings rose to a record in August as falling home prices made it harder to sell or refinance homes. There are 3.9 million unsold existing single-family homes, the most since at least 1982, according to the National Association of Realtors.”

“‘The chickens have come home to roost,’ said Jim Croft, founder of the Mortgage Asset Research Institute.”

“Since the government seized control of Fannie Mae and Freddie Mac, mortgage rates have dropped sharply, but there are questions about what it means for the housing slump. Donna Vella, a Realtor with 21 years in the business, said dropping rates will help, but probably not immediately.”

“She believes that the Conejo Valley market is at the bottom, but many people are waiting to buy. ‘People think it’s going to drop, drop, drop,’ she said. She believes otherwise. She’s buying investment property now. ‘Within this year or next year, if they don’t buy, they’re going to be foolish.’”

“While some have said the federal government’s takeover of mortgage giants Freddie Mac and Fannie Mae will help real estate by making mortgages less expensive, economist Keith Hembre said he didn’t agree.”

“The problem with residential real estate now is oversupply, he said. Credit has tightened since the housing-market collapse, but it isn’t really mortgage availability that has been keeping people from buying homes.”

“‘What we really need to see happen is for home building to continue to decline, and for sales to pick up,’ he said.”

“Peter Lansing, head of Universal Lending in Denver, said that while he welcomes lower rates, he is worried that the government may loosen underwriting guidelines too much in order to spur home buying. ‘Isn’t that what got us into trouble in the first place? It’s a tough problem,’ Lansing said.”

“Mervyn King…the Bank of England governor, acknowledged the City was in its worst state since the 1930s, but that pouring public money into the mortgage market was fraught with risks. Mr King said the notion that there was a ‘magic solution’ to this credit collapse was ‘an illusion.’ Heavy government intervention is a risky path to take, he warned. ‘What that would do is totally undercut the incentive of private sector banks to get their own balance sheets back in order,’ he said.”

“There are opportunities for good buys in Burleigh Waters and Varsity Lakes, as booming property prices settle down, according to PRD Nationwide Burleigh principal Mark Smith.”

“‘Since November, prices have come down 10-15 per cent and market activity has come down 50 per cent,’ said Mr Smith. ‘It hasn’t just happened in our patch. It has happened across Australia and across the world.’”

“A slump in sales in Vancouver dragged the average price of an existing home in Canada lower last month. ‘The drop was pretty serious, especially coming on the back of a big sales drop there the month before. When you’ve got sales for your most expensive city falling like that, that’s going to knock the stuffing out of the national average,’ said Douglas Porter, deputy chief economist at BMO Nesbitt Burns Inc.”

“Some mortgage brokers and loan officers urged borrowers to inflate incomes, exaggerate job titles or increase loan size because lenders could profit by selling riskier Alt-A loans to investors, said Jim Croft, founder of Mortgage Asset Research Institute. ‘When homes prices were going up, people were saying, ‘If I don’t buy now, I’ll never be able to buy,’ Croft said.”

“When Linda and Mark Pavlick bought their three-bedroom house in West Deer, Pennsylvania, 16 years ago, they paid $68,000. They now owe $105,000. The house was recently appraised for $80,000, Linda Pavlick said. ‘The decision to redo the loan was probably the worst decision we ever made,’ said Pavlick.”

“‘We went three months without gas,’ she said. ‘I used an electric plate to cook. But heating up the water for a shower, to wash your hair, that was the toughest. I’ve learned a lot of lessons, but this isn’t one I’d wish on anybody.’”

“A friend of mine has a saying that the only thing worse than being out of a job in the Verde Valley is trying to find a new one. I still laugh when I think back to an ad I saw from a national pizza chain that was looking for assistant managers in Cottonwood, but you need not apply unless you are career-minded.”

“I personally am enjoying this period of basically no growth in the Verde Valley. I’m sorry but it’s hard to be sympathetic for struggling developers and contractors who would have exploited every square inch of this valley if given the chance, all for the love of money.”

“For those of you that had construction jobs at one time and now find yourselves unemployed, you may want to brush up on your communications skills before you hit the job trail. So repeat after me, ‘Would you like hot or mild sauce?’”

“I guess I’ll just keep livin’ with Mom and consider a corporate position making a general nuisance of myself harassing tourists in Sedona trying to sell them a Time Share.”

“Following the work of a research group into what Beatles’ songs evoke the most memories from the past, perhaps some of them could be used to describe Ireland’s current economic climate.”

“After all, the State finances seem to be ‘Here, There and Everywhere’. The Government seem to be saying that ‘We Can Work It Out’ by ‘Fixing A Hole’ in the Exchequer funds with severe cutbacks. ‘I’ve Got a Feeling’ we should all be wary of the ‘Taxman’ after next month’s Budget, when all of us may be singing ‘Mailman, Bring Me No More Blues’.”

‘The Government is being urged to intervene in the housing market to halt falling prices, but many commentators are advising them to ‘Let It Be’.”

“Their rationale is that we saw the debt-fuelled housing boom last a few years, but ‘All Things Must Pass’. It will clearly be a ‘Long and Winding Road’ for the economy to ‘Get Back’ to where it used to be, and things are going to be getting worse before they will be ‘Getting Better’.”

The Keene Sentinel reports from New Hampshire. “The upscale, four-home neighborhood on 40 acres in Chesterfield that Jim M. Larkin invested in has turned out to be a nightmare. ‘I threw everything I had into it and it’s put me on the brink of bankruptcy,’ Larkin said in a phone interview with The Sentinel this week. ‘I’m a homebuilder and designer and basically that business is toast.’”

“In the year and a half since Larkin purchased the land for his neighborhood project and began the design work, he was able to build one house for a client before everything came to a screeching halt.”

“‘The economy dropped down to nothing. Nobody is buying,’ he said. ‘I don’t even get phone calls anymore. … I think everyone’s wondering what’s going to happen next. Banks are being really tight right now and they’re not giving out loans.’”

“‘I think it’s a very challenging market out there,’ said Chuck Nolan, president of the local chapter of the Home Builders and Remodelers Association of New Hampshire. ‘New residential housing projects by private contractors are relatively stagnant.’”

The Boston Herald from Massachusetts. “The latest ‘foreclosure bus’ tour is venturing into unfamiliar territory in a sign that the nation’s housing woes are hitting some of Boston’s trendiest neighborhoods. It’s showing off two condos at Harbor Towers, five condos at the new Broadluxe development along the Rose Kennedy Greenway in the Financial District, two condos in the North End and one in Charlestown.”

“‘It has to do with the overall housing market taking a crazy turn for the worse,’ said John Pace, the North End branch manager of American Trust Mortgage, which is teaming up to bus around the prospective condo buyers later this month.”

“Some of the condos have never been lived in because they couldn’t be sold in the current market. Others were simply abandoned. One is the victim of ’subprime exposure.’”

From The Day in Connecticut. “Real estate sales in the region have been down in the dumps lately, but July truly was the dog days. The median price of a single-family home in New London County for the month showed a $43,000 decline compared to last year, according to the Warren Group. The median price in July was $247,000 compared to $290,000 last year.”

“The statistics made this July the worst for Connecticut real estate sales in the past 13 years. Statewide, the median price of a single-family home slumped more than $25,000 compared to the same period last year.”

“‘The situation isn’t likely to improve much this year,’ said Timothy Warren Jr., CEO of The Warren Group. ‘Even though the decline in interest rates over the last few days may be a boost for some consumers, the market will continue to struggle because of the unavailability of credit and tighter lending standards.’”

“Paul C. Bishop, managing director of research for the National Association of Realtors, told about 150 real-estate professionals that projections show sales numbers nationally dipping nearly 5 percent this year, but rebounding more by than 3 percent next year.”

“After his speech, Bishop admitted that his projections represent ’some science but a lot of art.’ Bishop said projections are based on trends in the national economy as well as expectations that pent-up demand will inevitably start to drive prices higher.”

“The biggest question mark, though, will be when tentative buyers begin to start dipping their toes en masse into the warm waters of home ownership. Bishop said buyers who wait and look for the market bottom could be saving themselves $10,000 on the price of a home but losing the advantage by paying a full percent more for their mortgage rate.”

“‘They’re betting on two things, not just the price of the home,’ he said. ‘I don’t know about you, but two bets is too many for me.’”

The Times Herald Record from New York. “Orange County home prices hit a low for the year in August, as sales and prices continued to decline across the region. Orange’s median sale price for detached single-family homes fell to $291,000 in August, down 11.3 percent from $328,000 in August 2007.’

“The picture in Ulster and Sullivan counties is similarly grim, according to each county’s board of Realtors. In Ulster, the median slid to $237,500 in August, down from $255,000 a year ago. In Sullivan, it fell to $162,500 from $182,500 in August 2007.”

“The number of homes sold in August fell 29.2 percent in Orange, 40.6 percent in Sullivan and 31.8 percent in Ulster.”

“Ken Davies, general manager of John J. Lease Realtors, said that his firm has written up about as many sales in the past three months as it did during the same period last year, but that it’s gotten much harder to close deals. Buyers expect to receive every concession they ask for, while sellers are feeling pretty beaten up.”

“‘It’s very difficult to bring sides together when neither one of them is terribly happy about the whole thing,’ Davies said.”

From Newsday in New York. “A few more than 26,000 homes were sold on Long Island in 2007, compared to more than 40,000 in 2005. Median prices, too, have fallen. As a result, 2007 sales generated $16.4 billion, compared to $22.4 billion in 2005 - a 27 percent decline, Newsday found.”

“The 26,000 homes currently for sale on the Long Island MLS are on the market for a median price that’s $40,000 less than a year ago in Suffolk County, and $50,000 less in Nassau County, statistics show. The number of closings is down 17 percent from a year ago. Newsday’s analysis found it would take 19 months in Suffolk County and 15 months in Nassau County to sell all the homes on the market at the current sales pace.”

“‘This is only the beginning,’ said Pearl Kamer, the chief economist with the Long Island Association, who analyzed the data further for Newsday. ‘This can go on for two or three years, well into 2010.’”

“Some…states saw a decline in sales volume followed by drops in pricing, experts said. ‘In South Florida, prices were rising as volume … dropped sharply, and it was a year and a half delay before you saw the fall in prices,’ said Jonathan Miller, a Manhattan appraiser who also analyzes the Long Island market. ‘That’s not uncommon.’”

“Right now, the problem on Long Island is, in a word, ’stagnation,’ said Commack real estate attorney Lita Smith-Mines. ‘The deals that do start seem to fall apart. I think, basically, you’ve got people hunkering down in everything and, for them, making long-term commitments is a scary thing.’”

“Smith-Mines saw business drop 65 percent since 2006, so she is working on wills and other legal jobs, and has started writing for and editing a magazine called Boating Times Long Island. Another real estate attorney started bartending just to make ends meet, she said.”

“For now, homes are still selling; but it takes longer and pricing is critical, agents said. Debbie Ballantine is hoping that’s the case for her center hall colonial in East Hills. In the spring, she priced the four-bedroom home at $999,999 and hoped for a deal that would close by this month. She and her husband can’t buy in Florida until they sell here.”

“When they first listed the house, their real estate agent, Michelle Cohen, said it was ‘priced to sell.’ But it didn’t. Recently, the Ballantines lowered the price to $899,000. An open house produced a lot of interest - but so far, no buyers.”

“‘I do think at this price, it’s a better price point for people,’ Debbie Ballantine said. ‘It’s a good deal, so I’m hopeful.’”

The Long Island Business News. “Looking for a brighter economy? Don’t hold your breath; unless you can do without oxygen until 2010.And it may be even longer. A growing chorus of financial and business experts believes it will take years for the housing, credit and energy markets to stabilize and for unemployment to recede. For the foreseeable future, in other words, what you see is what we’ve got.”

“The real estate market, the engine that drove Long Island through the first half of the decade, remains flat. In Nassau County, the median sales price as of July was $465,500, down 9 percent from $510,000 a year ago. The news was hardly better in Suffolk, where the median price was $401,750, down 3 percent from the prior year when it was $415,000.”

“Another 181 Long Island homes went into foreclosure in August, up 32 percent from the same period a year ago. In Nassau County, the rate of foreclosures rose 41 percent in August to 117. A staggering 89 homes in Hempstead went into foreclosure.’

“Foreclosures are hurting more than neighborhoods. In Babylon Village, where foreclosures were in the single digits in August, buyers are still using the perceived glut of housing as leverage in negotiations.”

“‘There are buyers who are sitting around and waiting, looking for bargains,’ said Maureen Natoli, with Prudential Douglas Elliman in Babylon. ‘They know that there are bargains out there.’”

“‘The banks are overwhelmed and they’ve become so strict,’ she said. ‘So I’m prequalifying buyers before I let them in the car, especially with gas prices like this.’”

“The financial industry is one of many that has taken a beating in the current morass. Long Island lost 4 percent, or about 3,200 financial sector positions, which includes banks, lenders and insurers.”

“‘We used to be able to weather the recessions,’ said Martin Cantor, director of the Long Island Economic and Social Policy Institute at Dowling College in Oakdale. ‘We can’t do it anymore. We lost jobs in the financial sector and that’s where our growth was.’”

“To make matters worse, lower home prices have done little to stop Long Island’s brain drain, as younger workers move to regions with a more varied housing selection, including apartments, co-ops and downtown living.”

“‘Kids graduating from college don’t really have any housing opportunities here and have to leave,’ said Thomas Conoscenti, the chief economist for the Long Island Builders Institute and the Long Island Contractors’ Association.”

The Pittsburg Post Gazette from Pennsylvania. “Home prices in 15 of the state’s 16 metropolitan areas are in a downward trend, according to a new report from the Keystone Research Center in Harrisburg.”

“Inflation-adjusted home prices in Pennsylvania fell by 7 percent between the second quarter of 2007 and the second quarter of this year. Home prices in this state have fallen for three straight quarters and are now lower than their levels in the second quarter of 2005, the KRC found.”

“Nationally, over that same period, the decline in home values was 9.5 percent.”

“‘We warned back in January that the Pennsylvania housing market appeared to be following national trends,’ said Mark Price, a KRC labor economist and author of the report. ‘The findings of this report bear that out. Pennsylvania has not dodged the bullet.’”

The Morning Call from Pennsylvania. “The Lehigh Valley housing market, which had been holding its own in the face of a national housing downturn, took a big tumble in August. Average prices for existing homes dropped nearly 6 percent compared with the same month a year ago, dragging them down to the same prices as the summer of 2005.”

“It was the largest monthly price drop the local housing market has seen since at least 2001, when the data began to be collected here. The average existing home sold for $228,000 in August, according to a monthly report by the Lehigh Valley Association of Realtors.”

“‘The market is adjusting to reality,’ said Kamran Afshar, a Bethlehem economist who studies the Lehigh Valley economy. ‘People who want to sell a house now, these are the prices they have to deal with.’”

“At the heart of the price decline are supply and demand. A total of 520 existing homes sold in August, down 23.4 percent compared with the same month a year ago and the lowest number of sales since at least 2001.”

“‘We’re not selling them like we used to,’ said Mark Molchany, president of the Lehigh Valley Association of Realtors. ‘It’s no secret.’”

“Clay Mitman, owner/broker of Prudential Paul Ford Real Estate in Easton, said some newly built homes that sold at retail prices 18 months ago have dropped in price $100,000 to sell today.”

“‘For an awfully long time, sellers weren’t bringing their prices down because they didn’t believe prices were falling,’ Mitman said. ‘Now we’re seeing far more price reductions. People who absolutely have to sell realize they have to be the best house for the best price in the neighborhood.’”

“The average price of a new home in August was $440,000, down 10.9 percent from a year ago. And home construction in the area has slowed significantly.”

“‘Despite excellent mortgage rates and a dwindling new home inventory, new home construction and new home sales are definitely experiencing a significant slowdown,’ said Chuck Hamilton, executive officer of the Lehigh Valley Builders Association.”

“‘I think the buyers are there. They just don’t think it’s the right time to buy,’ he said. ‘They’re nervous. It’s consumer confidence.’”

The Express Times from Pennsylvania. “Local real estate agents said Monday the drop reflects sellers lowering their prices. In a market with a glut of unsold homes, those willing to make concessions stand out.”

“‘If there are five or six similar homes in a neighborhood, it’s best price and best value that gets the sale,’ said Clay Mitman, president of Easton-based Prudential Paul Ford Realtors.”

“Lehigh Valley Association of Realtors President Mark Molchany cited supply and demand. ‘Since there is more inventory, you have to reduce prices,’ Molchany said.”

“Those who bought at the peak about two years ago and now want to sell face trouble, Molchany said. But most homeowners are not in that situation. ‘People who bought their home seven years ago, they’re still sitting pretty,’ he said.”

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