The Housing Bubble

Bloomberg reports on California. “A tidal wave of anxiety is washing over America, from Wall Street’s concrete canyons to the lettuce fields of California. Liz Stevens, a 22-year real estate veteran who rose to be a regional manager for Prudential California Realty, invested $500,000 to open her own franchise in Berkeley in 2006 and hired 23 agents. On Aug. 1, she let the remaining 10 agents go and closed the doors.”

“Stevens still wonders how things went bad so quickly. ‘I’m educated, I’m intelligent,’ she said in an interview. ‘I have a business plan. These things aren’t supposed to happen to people like me. It’s very easy for me to feel ashamed.’”

The Press Democrat. “The head of a Santa Rosa financial services firm is shutting his company amid allegations he defrauded elderly investors out of millions of dollars. According to SEC filings, Gary Armitage of Healdsburg was a director in Lakeside Mortgage, an investment fund founded in 2002 that provided mortgages to builders in Northern California. Armitage put $100,000 of Lynn Luthi’s money into the fund.”

“Armitage put $400,000 of Luthi’s money into Asset Real Estate & Investment Co. ‘It’s just a bunch of worthless notes at this point,’ Luthi said. ‘It was just a Ponzi scheme where they got more and more and more investors until it blew up one day.’”

From My Fox LA. “The California economy will stay sluggish well into 2009 — characterized by falling home prices and increasing foreclosures amid continued job losses — until the struggling construction and financial sectors bottom out, according to the UCLA economic forecast released today.”

“UCLA economists had said previously that the diversified economies of Los Angeles and the Bay Area were ensuring continued job growth in the state, despite the housing downturn. But over the past three months, that situation has changed.”

“‘July’s unemployment report was, to put it bluntly, ugly,’ UCLA Anderson Forecast economist Jerry Nickelsburg wrote. ‘We think temporarily ugly, but ugly nonetheless.’”

The Union Tribune. “‘Put bluntly, housing consumers and financiers are in a state of shock,’ said David Shulman, a senior economist at the forecast. ‘Housing prices weren’t supposed to decline absent a significant decline in employment, but they have, big time.’”

The Glendale News Press. “The last remaining Guy Schmidt car dealership on Brand Boulevard has shut its doors, leaving scores of secretaries, managers and salespeople out of work. Though ‘business was terrible’ before the shop closed its doors, Schmidt sold the dealership for ‘personal reasons.’”

“Total sales for new cars and leases declined about 10% in the second quarter this year compared with the same period last year, from 2.2 million to 1.97 million, said Ron Ahlers, assistant director of finance for the city. Of taxable income for the city, that translates to a $23-million drop in sales-tax income for Glendale’s coffers, he said.”

The Manteca Bulletin. “Turn to the classified pages into today’s Manteca Bulletin. You’ll find ads for one-bedroom apartments ranging from $575 to $750 a month.”

“Now consider this: You can buy your own 528-square-foot one bedroom home with a 4,392-square-foot lot complete with car port with a three percent down FHA loan for $480.70 a month for 30 years.”

“‘It the opportunity of a lifetime for some people who otherwise would never be able to own a home,’ noted Realtor Tom Wilson of Wilson. ‘There will probably never be a better time to buy than now.’”

“The home at 413 ½ N. Grant St. is listed through Anna Anguiano of Century 21 M&M Associates for $68,900. It sold for $235,000 just over three years ago. It is one of roughly a hundred homes that are located off paved alleys in Manteca.”

From KFSN TV Fresno. “Homes selling for under 200-thousand dollars have flooded the market. We’re even starting to see the price listed outside on some real estate signs. Real estate broker Tom Avent said ‘I think probably 75-percent of the market is under 200-thousand right now.’”

“Many of these houses which sell for less than 200-thousand dollars have lost over 100-thousand dollars in value in just two years. But Tom Avent said buyers need to be patient because banks are overwhelmed by a foreclosure inventory.”

“Avent said ‘A lot of them got pre-approved a year ago and they think that they’re still good but lenders have changed their guidelines.’”

The Orange County Register. “Bob Simpson is president of IMARC , an Irvine-based company that works as an investigator for mortgage insurers seeking to understand why their mortgages went bad.”

“Q: At what point are prices going to stop falling? A: I’d ask what’s the median income in Orange County? I’d say multiply that by three or four and that’s the median home price. That’s about $300,000. Right now, anyone who bought their home since 2003 has lost money. … I’ve been on record that the median is going to return to 1999 or 2000 or worse. That’s about $300,000.”

“Q: How much fraud was there? A: I asked a friend, a good guy, ‘Have you originated an honest loan in the last five years?’ And he said: ‘The lenders deserve everything I gave them.’”

“Q: Have things changed at all? A: Mortgage lenders didn’t find religion and say we need standards. What happened is they originated so many bad loans that investors dried up. … You can’t fake it any more.”

“Two years of homeownership gains that lifted the county’s percentage of homeowners to its highest level in nearly two decades have been erased, according to the Census Bureau.”

“‘There is still a tremendous number of people who are financially exposed, and the census numbers suggest that maybe there has been only a small dent made in the number of people who’ve had to get out of their housing,’ said demographer Hans Johnson of the Public Policy Institute of California. ‘A decline of 20,000 homeowners over two years is a big decline, but how many more people are seriously at risk? You have potentially 105,000 more homeowners in San Diego who are seriously at risk.’”

“Gabe del Rio, who oversees the homeownership and lending program for the San Diego nonprofit Community Housing Works, said he’s not surprised by the statistics. His agency has been deluged with financially troubled homeowners who have seen their home values drop far below what they owe on their mortgages.”

“‘We’re seeing people losing homes by the hundreds, and that’s just our agency,’ del Rio said. ‘The old adage that you shouldn’t spend more than 30 percent of your income on housing worked 25 years ago. But it doesn’t work now when you’ve got these kinds of housing prices.’”

“Maria Ray and husband Eddie Jr., who bought their three-bedroom Spring Valley home two years ago for $475,000, were persuaded to buy after being told they could later refinance to bring down their monthly payments.”

“Instead, property values began falling, and their payments rose to more than $4,300 a month, which they have been unable to pay since June. Their house is now assessed at $325,000, and the Rays are hoping that Community Housing Works can work with their lenders so they can hold on to their home.”

“Although the couple’s income was as high as $120,000 at one time, it has since fallen because Eddie, a construction company foreman, is working fewer hours. They share their 1,400-square-foot home with three of their four children.”

“‘This is the first place we ever bought after 24 years of being married,’ said Maria, a legal support assistant for the county. ‘We worked so hard. In the beginning, when we couldn’t make our payments, we were both devastated and couldn’t sleep. We wondered, how could this happen? This agency is our last hope to save our house. If we lose our house, our credit will be ruined and it will be harder to get another house.’”

The Voice of San Diego. “In coastal Leucadia in Encinitas, eight brand new, $2 million luxury homes built with Cape Cod and other colonial touches comprise the first phase of Nantucket, a recent Barratt American housing development.”

“Next door, what was supposed to be phase two now consists of three half-finished, papered-up houses, weeds and some empty foundation slabs, surrounded by a chain-link fence.”

“‘It’s like a ghost yard,’ said John Kline, a real estate agent in Del Mar, who is trying to sell one of the houses from the first phase.”

“The development…stands as a symbol of the damage sustained by Carlsbad-based Barratt American after its bank cut off construction funding last year in the wake of the crashing housing market.”

“One of the eight 4,000-plus-square-foot houses built is now up for sale at a loss, and will soon enter the foreclosure process, said Kline, the house’s listing agent.”

“The house is a short sale, listed for $1.2 million even though his clients had a $1.5 million mortgage. A group of investors, including a Barratt employee who has since been laid off, paid about $1.9 million in December 2006 for the house.”

“A notice of default will be filed on the property within the next few weeks, Kline said, because the investors have stopped making their mortgage payments. That a foreclosure could occur in a showpiece development like this illustrates how far the trouble has reached for Barratt, and for the neighbors who paid close to $2 million each for their houses.”

“Aaron Brent and his parents work in real estate. His mom paid $2.1 million for her house, Brent said, a semicustom home near the beach. Now the house next door is for sale for more than $800,000 less than she paid.”

“‘In these places, you wouldn’t figure it would happen quite as much,’ he said Friday morning, gesturing over the fence to the half-finished houses. ‘Most of the time when this has happened, it’s out in the middle of nowhere where they have way too much land.’”

The Boston Globe reports from Massachusetts. “The median price statewide for single-family homes last month tumbled 9 percent to $323,000 from $355,000 a year ago - the lowest level in August in seven years, real estate data provider Warren Group said yesterday. The biggest drops were on Cape Cod and the Islands and in Central Massachusetts. In Barnstable County, prices fell 18.8 percent, to a median $325,000 in August, from $400,000 in 2007.”

“And now the real estate market has Wall Street’s crisis hanging over it. While various measures are intended to ease pressure on struggling homeowners and lenders alike, some specialists question whether they will make any meaningful difference given the current market conditions and fears about the economy sinking into a recession.”

“Nicolas Retsinas, director of the Joint Center for Housing Studies at Harvard University, said if the crisis causes large-scale job losses, the housing market would be further damaged. ‘At this point, the housing market is in such bad shape I don’t think even Congress or the administration can pull a rabbit out of a hat and change the momentum,’ Retsinas said. ‘I don’t think any act of government is going to dramatically reverse the market.’”

The Daily News Tribune from Massachusetts. “In July, the number of sales was down 6.3 percent from the same time last year. By August, the decline had spiked to nearly 15 percent.”

“‘I think there are some communities that are doing fairly well, but on a whole for Massachusetts, I don’t see the median prices leveling off for another six months,’ said Tim Warren, CEO of The Warren Group. ‘On the downside, the thing that worries me most is just jobs. If we have a lot of layoffs or cuts in employment levels, that’s got to be bad for the real estate market.’”

The Seacoast Online. “George Reagan of New Hampshire Housing Finance Authority, said only 11 percent of all mortgages in New Hampshire are subprime, although they account for one-half to two-thirds of all foreclosures.”

“But economist Chuck Lawton said that doesn’t mean the Seacoast is immune to a fall from the precipice at which the United States stands. For instance, in the York area between 2000 and 2007, the median income increased from $50,000 to $61,000, or 19.7 percent. In that same period, housing rose from $244,000 to $330,000, a 78.4 percent increase.”

“‘How can that happen? How can there be such a disparity? That’s what everyone’s asking in Washington today: How did that happen?’ he said. ‘My hypothesis is that higher income people are losing their jobs and more expensive homes are being sold. It’s part of the same trend of unsupportable housing prices.’”

The Providence Journal from Rhode Island. “Ron Phipps, a former president of the Realtors’ association, said the challenges at this point are all the foreclosed properties that have flooded the market and the credit crunch. ‘When one in every four or five transactions is REO [real-estate owned, or foreclosed properties], that makes it particularly difficult,’ Phipps said.”

“Bargain-savvy buyers can’t help comparing prices of market properties with the distressed ones. And the sale of distressed properties - including foreclosures and short sales - ‘take forever to resolve,’ Phipps said.”

“Phipps said he strives to be honest when buyers ask him to ‘guarantee that the price won’t drop’ by admitting that it is a possibility. He said he tells buyers that although property may lose some value in the short term, ‘in the interim you’re going to be in the house you want.’”

“But for people who plan to stay in a house only for a year? ‘Maybe you ought to rent,’ Phipps said.”

WTNH from Connecticut. “Economic troubles are hitting closer to home as 15 houses go up for auction in New Haven today. They are just some of 200 properties that were up on the auction block today. A house on Orchard Street was sold at an auction Thursday for $45,000.”

“In 2006, the city recorded 65 foreclosures. And, by 2007, that stat had jumped to 183. Already this year, the number is at 172 foreclosures.”

“Most to the properties up for auction today were bank owned. The company running auction done in Connecticut…move to do the same thing in New Jersey.”

The Journal News from New York. “The economic meltdown seeping into the Lower Hudson Valley is draining the profit from the sale of Brendan Meyer’s home.”

“In 2006, the 25-year-old bought an apartment in Tarrytown for $155,000 and, after $20,000 in renovations, he planned to sell it for $240,000. But as panic-stricken banks tighten lending standards and buyers find it harder to get mortgages, Meyer said he’s had to drop the asking price considerably.”

“‘It looks like this is going to be about a $25,000 to $30,000 decrease in what I anticipated getting for it,’ said Meyer. ‘I’m a little frustrated.’”

“As home values decline, incomes fall and monthly housing costs increase, Farokh Hormozi, professor of economics at Pace University, expects more residents to depend on credit. But the current liquidity crisis on Wall Street could make loans and credit cards more expensive, he said.”

“‘No matter how wealthy you are, occasionally you get short of cash and you rely on credit cards and loans,’ Hormozi said.”

From Bloomberg. “The New York metropolitan area is forecast to lose 64,000 positions, or 13.5 percent, by the second quarter of 2010, according to Moody’s Economy.com. While financial services firms account for about 12 percent of New York City employment, they represent almost 30 percent of total wages and salaries, said Marisa Di Natale, the regional labor market specialist for Economy.com.”

“Bill Kokkosis, owner of the Majestic Delicatessen Cafe across the street from the New York headquarters of Lehman Brothers, said he was missing about half of his usual lunch customers Sept. 15, the day the firm announced its bankruptcy.”

“‘This definitely affects the whole area,’ Kokkosis said. ‘It looks like 9/11.’”

“Residential real estate in Manhattan, the U.S.’s most expensive urban market, may be among the hardest hit parts of New York’s economy, Di Natale said. The median apartment price in the area has risen an average of $54,375 a year since 1995, reaching a record $1.03 million in the second quarter.”

“Second-quarter Manhattan apartment sales dropped 22 percent, the most for any second quarter since 1998, and unsold inventory approached an eight-year high, two signs prices may be poised to fall, said New York-based real estate appraiser Jonathan Miller, president of Miller Samuel Inc.”

“‘I think it’s already happening,’ Miller said. ‘You’re removing high-income-producing individuals, at least temporarily, from the economy or from purchasing new homes.’”

From CNN Money. “‘Nobody wants to catch a falling knife,’ said Dean Baker, co-director of the Center for Economic and Policy Research. Home buyers are also facing a slowing overall economy that’s shedding 100,000 jobs a month. Layoffs are of course especially high in the financial sector.”

“‘I wouldn’t be buying a condo in Manhattan if I were an investment banker,’ said Baker. ‘And if I owned one, I might be thinking about selling it.’”

“Glenn Kelman, founder of the online brokerage house Redfin, says his buyers are seeing an average discount of 10.7% from a home’s listing price. ‘That’s enormous,’ he said.”

“Kelman says that some people are pulling out of deals. ‘Clients have expressed their reservations about continuing the process,’ in the wake of recent events, according to Redfin broker Febe Cude.”

“The nearly half-point interest rate jump turned off buyers like a switch, according to Steve Habetz, a mortgage broker in Connecticut. ‘Things quieted down almost immediately,’ he said.”

“Nicole Harkin, who is a financial analyst with the General Accounting Office, and her husband, Brent Lattin, who works for the Federal Reserve, were particularly concerned about interest rates as they house-hunted in the District of Columbia.”

“Last week’s turmoil convinced them to postpone their purchase indefinitely. ‘We didn’t want to waste a half million dollars,’ said Nicole. ‘I think home prices have to correct some more.’ Their plan now is to wait out that correction and buy later at what they hope will be a lower price.”

The Wall Street Journal. “Many investors have been tempted by the idea of buying foreclosed homes in bulk from banks, at a steep discount. But the experiences of a Washington, D.C.-based property investment firm, Redbrick Partners LLC, show it can be difficult to manage a large number of single-family rental homes scattered across a metropolitan area.”

“The firm in recent years bought hundreds of properties in working-class areas of East Coast cities including Baltimore, Philadelphia and Trenton, N.J. It hired local managers to handle rentals and maintenance.”

“Now Redbrick, formed in 2003, has concluded that it is too costly to manage those homes and is trying to sell most of them.”

“In Baltimore and Trenton, Redbrick said in a recent letter to investors in one of its funds, ‘we have not been able to generate positive cash flow from these assets through our internal property management organization and have also been unable to identify satisfactory third-party property managers.’”

“As of June 30, the value of a $100,000 limited-partnership investment in the second fund, including past distributions of cash to investors, had fallen to an estimated $56,099. For the third fund, the value fell to $45,633 as of June 30 from the original $100,000 of investment.”

“‘We’ve learned a lot of what works and what doesn’t work,’ says Tom Skinner, one of Redbrick’s managing partners. ‘In the future, we’ll do more of what works.

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