The Housing Bubble

It’s Friday desk clearing time for this blogger. “Since she put her Norfolk rental home on the market four months ago, Robyn Hofheimer has lowered the asking price three times. Still no bites. Hofheimer and her husband own two houses in Norfolk. Now, the couple want to sell both and move to Virginia Beach, where they grew up. Timing isn’t on their side. ‘The market is just not moving out there at all,’ she said.”

“Two weeks ago, Mari-Ann Messick put her Virginia Beach house up for sale in hopes of trading it in for one closer to the beach. Messick and her husband bought the three-bedroom home in the Lake Shores neighborhood in 1992 for $142,000. She listed the house last month for $345,000. ‘Two and a half years ago, we could have easily gotten $400,000 or $425,000 for our house,’ she said. ‘Now I wouldn’t even dream of listing it for that much. Nobody would even look at it.’”

“Denise Watson and her husband have never owned a home. ‘We thought about buying a house last year,’ she said. ‘But the people we knew in real estate told us to hold off until this year. You don’t want to buy a house for $350,000, then six months later it drops to $300,000.’”

“Home prices that have been on a downward spiral for more than a year in Dutchess County slipped even lower in September. Qing James Ren, who sells for Weichert, Realtors, in LaGrange said he’s recently seen a pickup in activity, but also a change in mood for some as the prices have declined.”

“‘They’ve just slashed the price quite a bit … to get something to move,’ he said. ‘I think it’s panic, really, for the homeowner. They’re willing to take any kind of offer, if there is one.’ For people who have to sell now, ‘They take any offer seriously.’”

“Property owners in South County have seen their home values drop. And people who borrowed against their home equity through subprime loans will find it virtually impossible to refinance for a better rate. ‘What I’m finding is that these people didn’t have to show their income, now their loans are adjusted and they can’t make the payments,’ said Daniel Murphy, owner of Seaside Mortgage Co. in Narragansett. ‘And I can’t do much for them. It’s hard. We’re in a world of hurt.’”

“Economist Leonard Lardaro at the University of Rhode Island, said that even as recently as six months ago, well capitalized banks like Washington Trust would have had some wiggle room to play with to get loans to people who might have missed a credit card payment once or twice. ‘Now, if you have the slightest blemish on your credit record, the credit interview is over,’ Lardaro said.”

“‘We didn’t get involved in the kind of stuff three or four years ago that created this mess,’ said Michael Rauh, executive VP of the Washington Trust Company.. ‘We looked at that stuff and said ‘This is crazy.’ Some people said ‘You’re just a conservative old bank and you don’t get it.’ But as it turns out, we did get it.’”

“There will be Pittsburgh-area pain in employment, lending, and spending for months to come, according to experts. ‘Bank rates are very high right now and haven’t come down even after passage of the (Wall Street) bailout,’ said Mark Price, labor economist for the Keystone Research Center Harrisburg.”

“‘We’re not talking about a Depression, though. That’s crazy talk,’ said Price.”

“Economists seem to agree a wave of home foreclosures began this economic downturn. Dawn Oestreich of Mount Horeb knows this experience first hand. ‘It’s the worst feeling ever,’ Oestreich told 27 News. ‘You don’t want to tell people your house is going into foreclosure. You feel embarassed.’”

“Oestreich says they bought the two story home three years ago with no down payment and shaky credit. When the mortgage adjusted up, her work, and her husband’s seasonal job, could not keep up with the monthly house payments, as they also faced emergency medical expenses. Oestreich knows the financial recovery from losing a home will be tough. ‘Our credit is ruined now.’”

“Denise from Indianapolis: ‘Two years ago I bought my home on a two-year arm, being convinced by the mortgage company I would be able to refinance before the two years were up. Well, the two years were up in September and no one will touch it. I am now being told I owe more than my house is worth. I am a single mom and only bring home $1,500.00 a month. I am now two months behind. The mortgage compant is not willing to work with me at all. Their only advice was to contact a realtor, which I have to pay for, and try to do a quick sale. If I can’t pay my payments, how can I pay a realtor? I am losing a home that I love. The American dream is huge joke!’”

“Sheila from Sacramento: ‘My house is going into foreclosure on October 1, 2008. I pay $2,040 a month in mortgage payments and I take home $2500. I lost my roommate and now I can’t afford to keep my home. I’m trying to get my payments lowered but no one will help me. Does anyone out there know of a way I can keep my home?’”

“”Average Joe” from Georgia: ‘I am 35 years old and working since high school. In the heat of the moment, I purchased a pricy home, expensive home gadgets and a Porsche. Now I am bankrupt.’”

“Prices in the Greater Toronto Area market fell for the first time in more than a decade, according to figures released yesterday. It’s a new reality for some vendors when realtor Duncan Fremlin appraises a property for sale. ‘It’s a tough conversation to have, because sellers don’t want to hear that they may not be getting what they expected,’ said Fremlin. ‘When you do the comparables it’s not about what you may have got last year, it’s what the houses in your area got this month.’”

“Home sales in the Chicago metropolitan area dropped 30.1 percent in August to 6,804 from a year earlier, and median prices dropped 5.7 percent to $251,250, according to the latest report from the Illinois Association of Realtors. For decades he’s had designs on creating and selling homes, but after 9 months on the market, architect and builder Reinhold Schmid had to rent out his latest project and he candidly admits there’s no work on the horizon. ‘The bottom dropped out of the barrel basically,’ Schmid said.”

“In the meantime realtors say owners hoping to get prices from yesteryear for their homes are finding their houses aren’t selling at all. ‘The past is history,’ said real estate agent Steven Sims. ‘We need to move forward if they have a motivation to sell.’”

“Sales did boom in two neighborhoods that have bore the brunt of the foreclosure wave —- north Oceanside and east Escondido, according to the report. In Oceanside’s troubled area, sales were up 248 percent while Escondido’s foreclosure center saw sales jump 306 percent from the same month a year ago. In those neighborhoods, real estate prices have fallen as much as 60 percent from 2005 levels, according to sales records.”

“San Diego County has lost jobs for five of the last six months, according to the U.S. Census Bureau and California Employment Development Department. If employers continue to shed jobs, foreclosures could worsen and the buyer pool could diminish. ‘It means we’re going to be in a recession and it’s going to last a while,’ said Norm Miller, a real estate professor at the University of San Diego. ‘And that will further hurt everything —- housing, car purchases, retail sales. Everything.”‘

“While the $700 billion bailout contains some provisions for homeowners in distress — for instance, modifying interest rates on home loans for hardship circumstances — real estate professionals say interest rate reductions won’t solve the housing debacle in Southern California, where property values have fallen by one-third since 2005.”

“Saving several hundred dollars a month will do little for homeowners in San Diego who can’t make payments on a $600,000 mortgage for a home worth $400,000, says mortgage broker Matt Battiata in Carlsbad.”

“‘I’m recalling days of the RTC and what it did to the property values,’ said Jim Bliesner, executive director of the San Diego City-County Reinvestment Task Force, referring to the Resolution Trust Corp. formed in the late ’80s during the savings and loan crisis to liquidate assets of bankrupt thrifts. ‘It will just prolong the economic decline of property values and resale opportunities.’”

“The loan modification program, at least the Countrywide settlement, aims to stabilize neighborhoods by not letting houses become abandoned magnets for vandalism. But this program doesn’t exist to keep prices from falling further, said Deputy Attorney General Ben Diehl. ‘The real estate market will set the fair market price,’ Diehl said. ‘It’s not the attorney general’s business to enter into a settlement either to inflate or deflate prices.’”

“‘Don’t forget that prices are falling anyway,’ said Chris Thornberg, principal at Beacon Economics. ‘Stopping foreclosures only bails stupid people out. It doesn’t stop prices from falling.’”

“‘The value is really based on what property is selling for, not how badly it’s encumbered,’ said Larry Buster, San Diego county manager for First American Title Company. ‘If Countrywide is reducing the indebtedness, the test is still going to be what are people willing to pay for the property.’”

“Washington’s rescue of troubled financial giants, Sen. Bob Bennett said Tuesday during remarks in Park City, could eventually make American taxpayers some big money. He said 400 people have called his office opposing the bailout for every one person who called supporting the plan. Some of the callers utter bad words as they speak to his staffers, Bennett said, describing that office workers have received instructions to hang up on callers who are obscene.”

“He said the mortgage industry operates differently than it once did, saying mortgages are ’slice and diced’ and ’sold off in bits and pieces all over the world’ to investors. Problems erupt if the original mortgage is not paid.”

“Bennett said the housing market is the bubble of today’s economy, following the dot-com era and the tulip market long ago in Holland. ‘The current bubble has been the housing bubble . . . ,’ he said, adding that people had seen buying a house as a no-risk investment. ‘When the housing bubble burst . . . it created wreckage all around it.’”

“Jeremy Grantham: ‘We got so good at denial. The Fed was in denial, the Treasury was in denial, the bosses of Merrill Lynch and Lehman were in denial. And yet this crisis was the most widely heralded ’surprise’ in the history of finance.’”

“‘All you had to do was open a history book and see what happens when you have a bubble. In this case, there was a bubble in housing and there was a magnificent bubble in risk taking. People were just shoveling their money into risk on the pathetic idea that risk is always rewarded.’”

“‘That is completely misguided. You don’t get rewarded for taking risk; you get rewarded for buying cheap assets. And if the assets you bought got pushed up in price simply because they were risky, then you are not going to be rewarded for taking a risk; you are going to be punished for it.’”

“‘You can lay the evidence in front of everybody, but they will yawn and ignore it. It’s that denial that’s impressive. It’s what happens in bubbles.’”

“The trillion-dollar question everyone keeps asking about the economy is: When will the housing market come back? The answer should be apparent: It won’t.”

“Oh, home sales will slowly rebound and prices will at some point stop falling. But the fast and loose housing market that made the industry billions and fueled the world financial market crash has gone the way of nickel pop and $1 gas.”

“My old granny lived through the Great Depression. To the day she died, she didn’t trust the financial industry because of the people she knew who lost their savings when the banks failed. Will some people feel the same way about home values?”

“Perhaps. Or at the very least, they’ll have real reason to worry if real estate values in their neighborhood start growing at leaps and bounds ahead of wages and overall inflation. And if they question the wisdom of leveraging a house beyond all reason to pay for trips to the mall or vacations in Aruba, the economy will be better for it.”

“As for the real estate industry, it will have to make do with less.”

“Between 25 percent and 30 percent of recent peak housing demand is gone for good and won’t be coming back. Those were the purchases made by investors financed with the cash leveraged out of other properties and the sales to buyers who never should have qualified for homeownership.”

“That means fewer home sales, fewer home starts and less appreciation. And, believe it or not, that’s a good thing. It makes a house a roof over your head instead of a get-rich-quick scheme.”

The Rocky Mountain News reports from Colorado. “It’s as if the Denver-area housing market has gone back in time. The number of unsold homes on the market in September dropped to the lowest level since December 2005 and the number of homes placed under contract jumped almost 22 percent from September 2007, the best September for sales in three years. The average and median sale prices of homes, meanwhile, have fallen back to 2002 levels.”

“‘”I don’t think you can paint a very rosy picture for the market,’ said Jason Miller, managing director of Realty Source Financial. ‘We’ll be seeing job losses sooner, rather than later. And when you have no equity in your home and you lose your job, that is a recipe for a foreclosure.’”

“Miller said the lower end of the market may have hit bottom because there are so many investors shopping in that price range. ‘There are homes in Montbello that had sold for $190,000 and are now selling at $75,000 or $80,000, and as rentals, they will cash flow,’ Miller said.”

The East Valley Tribune from Arizona. “East Valley pawnshop managers said that they have seen a spike in their money-lending businesses as the U.S. economy continues to worsen. Tammy Naylor, manager of Albert’s Chandler Pawn Center in Chandler, said in her 12 years in the pawn business, she’s never seen anything quite like it.”

“She said more women are coming in with family heirlooms — like rings and earrings — and more men are willing to part with their guns and power tools for a few weeks, looking for a quick financial fix to fill up their gas tanks or pay off bills. ‘Looking at these items, you know people are hurting and hurting badly,’ she said. ‘These are things that people typically hold on to, no matter the circumstance.’”

“At Albert’s, Naylor said, the shop now has so many tools that it has stopped pawning them altogether. ‘As each day passes, we’re seeing more and more new faces looking to pawn items,’ Naylor said. ‘We thought that the stimulus check might slow things a bit, but it hasn’t.’”

“Carl Richardson, a pawnbroker with more than 25 years’ experience…said people have come in with all kinds of stories on how tight their budgets have gotten. ‘Working in this business, you’re like a bartender, you hear it all,’ he said. ‘Now, there isn’t just one kind of clientele you’re dealing with. It’s everybody.’”

The Payson Roundup from Arizona. “Per-capita, new-home construction levels have sunk to the lowest ever, said Arizona Treasurer Dean Martin. The slump has contributed to a projected $1.5 billion state budget shortfall in fiscal year 2008, which could grow to $2.5 billion by 2010, predicted Martin. The state can choose between massive spending cuts or tax increases, Martin said.”

“‘Other folks called me Chicken Little a year-and-a-half ago,’ he said. The housing bubble’s frenzy was ‘insane,’ Martin said. ‘It was going to burst.’”

“In 2002…Arizona’s average home that year was valued at $165,000. ‘All of a sudden, we’re off to the races,’ Martin said. In 2005, average home values topped $210,000. Prices continued rising until 2007, when average home prices peaked at $325,000. Builders carried on, often constructing spec houses. Now, Arizona has 67,000 excess homes.”

“As of January 2008, prices remained at $305,000. ‘We had a lot of builders building as fast as they possibly could,’ he said.”

The Arizona Daily Sun. “Bob Raymond is facing a major dilemma about his property in the bankrupt Presidio in the Pines mixed-use project…with his bank requiring him to immediately repay the more than $180,000 he took out to buy the two house lots in Presidio.”

“Raymond is one of 46 lot buyers in Presidio who took out construction loans with GMAC Bank, the preferred lender for the west Flagstaff master-planned development. His 87-year-old father, who also bought a lot in Presidio, received the same letter.”

“‘GMAC Bank can no longer ignore the realities associated with the Presidio in the Pines construction project. After two years, progress is not being made to resolve the construction delays,’ a GMAC loan officer wrote.”

“For Raymond, the letter meant he has less than two weeks before his loan defaults and starts the slow process of foreclosure. In the current economic climate, he wasn’t sure whether any bank would be willing to give him a new loan in the bankrupt project. ‘It looks like my wife, myself and possibly my 87-year-old father who has purchased a lot in Presidio … we wouldn’t be able to secure financing,’ Raymond said.”

“Even if approved, Raymond said he would have to get a new loan at a higher interest rate than he got two years ago. He also has reservations about committing to a new loan when Presidio’s future is less than certain. ‘It is just throwing good money after bad,’ Raymond said.”

From KUTV in Utah. “One of the most popular parts of the Salt Lake Valley looks abandoned in some spots. Geri Lloyd lives in Draper’s Hickory Ridge neighborhood, which has been hit hard by foreclosures. ‘It’s bad when you look around and see all the homes for sale,’ Lloyd said.”

“Jillinda Bowers, with the Salt Lake Board of Realtors says there are about five thousand foreclosures in Utah right now. Most of the now abandoned houses were purchased by investors, speculators or just people with big hopes. They paid big bucks for a property and hoped for a big return. ‘They’re million dollar plus homes,’ says Bowers.”

“One house on Hickory Ridge Lane, is unfinished, with rebar and pipes exposed. The owner is asking $695,000. Bowers says a buyer would need to invest another $800,000 to finish the house. Down the street a seven thousand square foot home is empty. According to Bowers, the builder who owned the house, couldn’t afford the payments. The asking price for that house is 1.2 million dollars.”

“Bowers says that foreclosed property, like others, will likely sell for far below the asking price. ‘I can pretty much bet they’ll be negotiating on that price. The bank is anxious to get it sold.’”

“To see the biggest losses, go to the highest part of Draper, right near the new LDS Temple. A 24-thousand square foot home on Canyon View Cove sits unfinished. Other houses are in foreclosure or are in the process of a short sale.’

“Back in on her street, Geri Lloyd is already worried. ‘I think for sure the value of my house has gone down. You look around at your neighbors houses and how cheap they’re selling them and you know you’re not going to sell your for full value.’”

The Review Journal from Nevada. “Single-family home sales in Las Vegas tripled in September from the same month a year ago and inventory remained stable, but median prices dropped 31.8 percent, the Greater Las Vegas Association of Realtors reported. Home sales have increased in all but one month this year as prices continue to fall, indicating that the housing market is still declining.”

“‘These two statistics are obviously related,’ association President Patty Kelley said.”

“Kelley has been saying for months that the unprecedented number of foreclosures on the market continues to drive down prices. Roughly two out of three home sales in Las Vegas over the past few months have been bank-owned properties, she said.”

“The inventory of homes on the MLS remained steady at 22,784 in September, compared with 22,710 in August. It’s down 5.9 percent from 24,218 in September 2007. The median single-home price slipped 7.1 percent to $195,000 in September. Condos and townhomes were down 2.9 percent to $119,450.”

“‘I didn’t think I’d ever see the median price under $200,000,’ Kelley said. ‘The bottom must be in sight because I don’t see how much further we can go. There’s great buys if you can get the funding. I’m trying to get someone closed today, but it’s becoming an impossibility. It’s getting tougher and tougher to get them closed.’”

Las Vegas Now from Nevada. “One of the largest mortgage lenders in the country announced it will help hundreds of thousands of Americans facing foreclosure. It’s a huge settlement that’s being worked out with Countywide Financial and several states, including Nevada.”

“Rena Starks is a home advocate who…believes this settlement is not a cure-all. ‘I would love to see what the governor would want to happen. I don’t think it’s going to happen with this. I think this is just another failed way,’ she said. ‘I don’t see the housing crisis ending. I see the housing crisis as continuing until we can get some investigation to find out truly what should be done.’”

“His house is home sweet home for Raul Esguerra and his family, but lately, not everything’s been sweet, ‘Right now, I believe the system was broken. There’s something that we don’t know.’”

“Esguerra is an accountant and works with numbers everyday. Esguerra says he was duped by deceptive trade practices. His original mortgage was $2,200 a month. Now, it’s at $3,700 and about to go up another $1,700. That doesn’t include the $1,600 for a second mortgage.”

In Business Las Vegas from Nevada. “The Las Vegas housing market continues to be driven by value, but short sales remain a ‘large black cloud’ hanging over the valley, according to Dennis Smith, president of Home Builders Research. In August more than half of the 3,051 sales of existing homes were priced under $200,000, Smith says. He reported a median price of $200,000, a decline of $75,000 compared with August 2007 and a decline of $10,000 compared with July. ”

“About 25 percent of the listings on the MLS are short sales in which owners are trying to persuade banks to allow the homes to be sold for less than what is owed on the loan. Of the 8,500 short sale listings, only 3 percent are under contract, Smith says.”

“‘This demonstrates how most Realtors have been staying away from short sales,’ Smith says. ‘It is well known and talked about how the short sales can take three to six months and more just to get an answer from some lenders.’”

“Many will end up going through foreclosure and likely be sold for less than they would have been as a short sale, he says. ‘If homeowners could have had their mortgages redrawn or renegotiated, many of the homes probably would not be sitting for a year or more deteriorating other home values in their neighborhood.’”

“Lennar Corp., a Las Vegas homebuilder, reported that through the end of August, its nationwide sales plunged more than 50 percent, and executives say they are continuing to cut prices, reduce construction costs, cut jobs and consolidate divisions to improve profitability. Executives say the stimulus bill enacted in July that gave a $7,500 tax credit for first-time home buyers hasn’t helped as the company reported its sharpest drops in its Western markets.”

“KB Home, meanwhile, reported its third-quarter loss quadrupled from a year ago with revenues dropping 56 percent. The company reported half of the home buyers backed out of their contracts and blamed rising foreclosures and tight lending standards for the problems.”

The Reno Gazette Journal from Nevada. “Buffy Martin Tarbox said she’s done everything right. When she bought her 900-square-foot home in a southwest Reno neighborhood nine years ago, she paid a fair price with a fixed-rate loan from a reputable lender. Five years later, when the housing market took off and home values soared, she resisted the urge to take the equity out with a second loan.”

“In the past 18 months, Tarbox has watched the value of her home drop about $100,000, according to value estimates on Zillow. Reno real estate agent Ken Wiseman said some home values in her neighborhood have dropped by nearly 50 percent since 2005.”

“She’s luckier than many and still has equity in the property. But the fact that potential buyers are having difficulty getting credit from a financial industry in turmoil could be a problem for Tarbox. Two months ago, she was laid off from her job at a local nonprofit. Again, luckier than most, the agency hired Tarbox to fill a different position.”

“16 houses within a mile radius of hers are empty foreclosures, Wiseman said. The foreclosure rate in Washoe County, Nev., where Tarbox lives, is double the national average. Nevada, which led the country in soaring home prices, now leads the country in foreclosures. The median sales price for a single-family home in Washoe County, $250,000, has dropped nearly 20 percent compared with one year ago, according to the Reno/Sparks Association of Realtors.”

“Tarbox now makes half of what she was paid before and is preparing to sell her house to relocate to San Francisco, where her husband of two years is a police officer. ‘I’m more concerned about potential buyers and their ability to secure loans,’ she said. ‘The house may end up sitting on the market for a while if they can’t get the loans. And there’s a lot on the market as well.’”

Please visit the HBB Forum. Post off-topic ideas, links and Craigslist finds here.