The Housing Bubble

The Modesto Bee reports from California. “Foreclosures dropped dramatically during September throughout the Northern San Joaquin Valley, but don’t start celebrating yet. Experts warn that the decline was caused by a change in state law that simply may have delayed — not stopped — foreclosures. The law, which took effect Sept. 8, makes lenders meet strict homeowner notification requirements before they can start the foreclosure process. ‘Clearly, SB 1137 has had a huge impact on notices. Only time will tell if the impact is beneficial or only delays the inevitable,’ said Sean O’Toole, founder of ForeclosureRadar.”

“‘We’ve had a 96 percent increase in inbound call volume during the last five weeks,’ said Martha Lucey, president of (a) nonprofit housing counseling service certified by the U.S. Department of Housing and Urban Development to serve Stanislaus, San Joaquin and Merced counties.”

“‘But we haven’t seen any dramatic movement in workout success’ during mortgage default negotiations with lenders, Lucey said. ‘If workouts aren’t done, then SB 1137 may just be delaying foreclosures.’”

“The law was designed to encourage lenders to modify loans rather than foreclose them, but it doesn’t require deals be made. ‘We expect SB 1137 to have no long-term impact beyond delaying the foreclosure process for homeowners and slowing the overall recovery,’ O’Toole said. ‘Given the significant negative equity now occurring in most California foreclosures, modifying loans to affordable levels either requires large principal balance reductions or extending the unsustainable teaser rates that created the foreclosure crisis in the first place.’”

“O’Toole said that if lenders start reducing the principal balances owed on many loans, then ‘they are likely to encourage nondefaulting homeowners to default in the hopes of securing similar reductions.’ That ultimately would increase defaults, not decrease them as intended, O’Toole predicted.”

“Chad Costa, a Modesto real estate broker who specializes in selling previously foreclosed, bank-owned property, also predicts that the new law won’t help much. He said the regulations are ‘just delaying when those assets will hit the market.’”

“Of the bank-owned properties he represents, Costa said he has more than 120 offers in negotiations to buy 56 properties. But he has 51 other properties for sale that don’t have any offers to buy. ‘The challenge is that there are fewer first-time home buyer loan programs due to the credit crunch,’ Costa said.”

The Mercury News. “Santa Clara County saw big declines in home foreclosures last month as a new state law took effect and banks tried to work out terms for borrowers struggling with mortgage payments. The county posted a 55 percent drop in September in notices of default. Foreclosure sales in the county were down 24 percent — double the statewide drop. That still represents a more than threefold increase from September 2007.”

“Banks are adjusting to the new law at a time when they were already at their capacity filing record numbers of foreclosures, O’Toole said. That has slowed their foreclosure activity. ‘Statewide, we have around 60,000 properties that can be sold at their next scheduled sale date, so there’s quite a few in the queue that can be sold,’ he said. Those loans do not have to meet the terms of the new law because the notices were filed before it went into effect.”

“O’Toole said banks are reducing rates for set periods of time, which only delays foreclosures. He said the monthly rate of filings may drop, ‘but ultimately we’ll have the same number of foreclosures. It will just take longer to process them,’ he said.”

The North County Times. “Far fewer North County houses entered foreclosure in September than the previous month, according to data released Monday. Notices of default act as a forward-looking indicator of the number of foreclosures sent back to the bank. In contrast with notices of default, finalized foreclosures in September were 144 percent higher than a year ago.”

“Oceanside and Escondido continued to lead the way with the most foreclosures, constituting about 50 percent of all North County foreclosures during September. Middle- and higher-end areas such as Carlsbad and Encinitas continued to report sluggish sales.”

“‘”It’s probably less immediately painful, but I think you get to the same point,’ O’Toole said. ‘It kind of comes down to how you prefer to take your medicine —- do you want to have more pain up-front and recover faster or have less pain and take longer to recover?’”

“Last week, a separate report by the North San Diego County Association of Realtors also showed…sales boomed by 92 percent from the same month a year ago, the biggest increase since sales slowed in 2006. However, the basemark, September 2007, was one of the worst sales months on record.”

“Beyond the state’s legislative effort to encourage lenders to assist homeowners in finding an affordable payment, Congress passed a $700 billion bailout that granted the Treasury Department authority to purchase troubled mortgages and inject capital into struggling banks by purchasing stock.”

“Neither legislative effort would do much to stem the tide of foreclosures, O’Toole said. ‘It doesn’t change any of the fundamental facts, which are that homeowners stopped making the payments’ because the loan’s principal —- the amount of money borrowed —- was too high, he said. ‘It’s all about the principal balance at the end of the day, and they aren’t addressing that problem.’”

The Press Enterprise. “Despite unsuccessful efforts to get a plan for local control included in the $700 billion financial rescue plan Congress approved earlier this month, Inland officials continue to push for a say in how the federal government disposes of distressed mortgage assets. Riverside and San Bernardino counties, along with at least 15 cities and 30 businesses, want to create a public-private partnership to act as a caretaker for the assets the federal government buys up, to ensure the homes are maintained and sold in a systematic way.”

“Officials want Washington to hear this: The Inland region, already one of the hardest hit by foreclosures, cannot withstand another so-called ‘asset dump’ like what happened in the late 1980s and early 1990s with the savings-and-loan crisis.”

“At that time, the federal government set up the Resolution Trust Corp. to dispose of assets that the federal government took over from S&Ls. It sold off huge numbers of foreclosed properties at once, further depressing real estate values in many parts of the country, including the Inland region. ‘Either we will lead or will be led, and where we will be led is not pretty,’ said Burum, a managing member of Rancho Cucamonga-based developer Diversified Pacific.”

“To prevent a repeat, local officials — and private investors — would use the public-private partnership corporation to help ensure that properties are sold strategically over time. Thus, values wouldn’t decline further because of a sudden glut of homes on the market.”

The Sacramento Bee. “The number of for-sale signs in El Dorado, Placer, Sacramento and Yolo counties fell in September to a 19-month low of 11,022, Sacramento property researcher TrendGraphix reported Monday. One in four homes for sale at September’s end – 2,736 in all – were bank foreclosure properties, according to Trend-Graphix.”

“Lyon CEO Mike Lyon said 62 percent of the region’s sales in September were bank repos. He said sales held steady in September – remaining higher than the same time last year – as prices kept falling. ‘Banks are desperate to get the bad loans off their books by pricing their foreclosed homes low for a quick sale,’ Lyon said in a statement.”

The Press Democrat. “A prominent Bay Area developer, Delco Builders, has stopped building homes in Sonoma County and brought in a financial restructuring firm in an effort to stay in business, according to a letter sent by the company to vendors and subcontractors. ‘As we discussed previously, due to the depressed residential real estate market, Delco’s cash flow has become very tight, and we need to modify the terms of the loans with our lenders to enable the company to work through the weak housing cycle,’ the letter stated.”

“The Pleasant Hill developer’s financial crisis comes as home builders increasingly struggle to meet loan payments and pay contractors and suppliers. Builders are tapping reserves, selling land or even renting out unsold homes, industry experts said. ‘Everybody is squeezed,’ said Greg Paquin, president of a new home research and consulting firm in Folsom.”

“Failure to develop a repayment plan with its lenders will force Delco to shut down the company and liquidate its assets, the letter continued.”

“Housing starts have plunged 61 percent in Sonoma County during the first eight months of 2008, according to the Construction Industry Research Board. County during the first eight months of 2008, according to the Construction Industry Research Board. Builders took out permits to construct 427 homes and apartments, down from 1,082 during the same period a year ago. Construction companies have shed 600 jobs in Sonoma County over the past year.”

The Desert Dispatch. “The number of new building permits issued by the city for single family homes dropped by about 74.8 percent between 2007 and the first eight months of 2008, adjusting for the fact that data from the last third of 2008 is missing. The drop-off was even sharper than in San Bernardino County as a whole, where the numbers were down by 64.1 percent in the same period.”

“The reasons for the building decline in Barstow and the county as a whole were linked to larger economic trends. Between 2002 and 2005 , inflated home prices in San Bernardino County put buying a house out of reach for many people. At one point in 2005, only 25 percent of San Bernardino’s residents could afford a median-priced home, said Jeff Simonetti, senior vice president of government affairs with the Baldy View chapter of the California Building Industry Association.”

“‘The prices people were getting at that point literally outstripped the number of people that could afford that house,’ he said.”

The Merced Sun Star. “For the past 37 years Bob Silva’s Ford and RV dealership has sold cars and trucks in Chowchilla. But if things get any worse, Silva is going to hang up his spurs. ‘Two more months like this, I’ll retire and send everyone home,’ said Silva. ‘Why throw good money after bad?’”

“The car industry in California — the country’s largest car market — employs more than 100,000 people and had overall sales in 2006 of $86 billion, according to the National Automobile Dealers Association (NADA).”

“But if you thought this sales slump was isolated to new cars, think again. The owner of Smiley’s Auto Sales, a used car lot in Merced, described recent sales with one word — ‘horrible.’ Rick Smiley has never seen sales for cars at his lot this bad. They are down 30 to 40 percent, he said. And with Ford and GM slashing the price on their cars just to sell them, said Smiley, fewer people are coming to buy used cars on his lot.”

“Before long, NADA may wish it had a different acronym.”

“Vacant office space spiked during the third quarter in yet another indicator that North County has entered a recession. The third-quarter numbers were the worst for commercial real estate since the residential housing boom went bust three years ago, according to a recent report by Grubb & Ellis, a commercial real estate firm.”

“Commercial real estate joined a long list of negative economic indicators for San Diego County: job losses for five of the last six months, house prices 30 percent below a 2005 peak, foreclosure rates double a year ago and incomes failing to keep pace with inflation.”

“‘Commercial construction and commercial real estate were holding up longer than the residential market, and that’s one more thing that’s no longer a positive for the economy,’ said James Hamilton, an economics professor at UC San Diego. ‘I would take any development there as an unfortunate move, but not an unexpected one.’”

“Counting recently vacated space and newly leased offices, North County businesses abandoned 340,000 square feet of space during the third quarter. The losses sent the overall office vacancy rate in North County to a new high of 19.2 percent.”

“Where the economy goes from here is largely dependent on consumer confidence and spending, said Edward Leamer, a professor with UCLA Anderson. ‘All the anecdotes are extremely worrisome,’ Leamer said. ‘If that (consumer) fear continues, we’re going to have a really bad couple of quarters. We need to have our leadership and the media say, ‘It’s not that bad, and it’s OK to go out and spend.’”

“‘The mom-and-pop guys are not doing deals, and they’re feeling the impact of these slowdowns,’ said said Chad Iafrate, retail division broker for Grubb & Ellis. ‘Consumers have lost that false sense of wealth, getting paid $50,000 a year, and they were taking out an extra $15,000 every year from their homes. It was a spending frenzy.’”

“Now that residential real estate prices have tumbled, consumers are unable to use their house equity as disposable cash. And they are struggling to keep up with their mortgage payments, as North County foreclosures have doubled from a year ago for the last several months, according to ForeclosureRadar.”

The Pasadena Star News. “With turmoil in the financial markets hitting its usual roster of deep-pocket donors, the Pasadena Symphony can’t afford to stage its November concert and has cancelled the performance, co-Executive Director Tom O’Connor said Monday.”

“‘We have been hit pretty hard by what’s been occurring. We planned a gala last fall and two major supporters, IndyMac and Countrywide pulled out,’ he said, citing the failed bank and the troubled mortgage lender.”

“Symphony violinist Laurie Stiles, a Pasadena resident, said Monday that the news was ‘like a punch in the stomach’ to the musicians. ‘We did not expect it,’ she said. ‘It’s very shocking.’”

The Press Telegram. “The California Association of Realtors plans to make its annual prediction for home prices and sales when it gathers today through Thursday at the Long Beach Convention Center. The closely watched CAR report, which will be formally released Wednesday, should provide something of an advance snapshot of where Realtors believe the tumultuous California housing market is headed amid the credit crisis.”

“Home prices in Southern California are down about 27 percent from last year.”

“The annual convention is the largest gathering of Realtors in California. About 10,000 agents, brokers and related professionals plan to attend, said association spokesman Mark Giberson. Attendance is expected to decline 2,000 to 4,000.”

“The number of Realtors in California is down along with the markets they serve. The association has about 180,000 members - about 25,000 less than a year ago, Giberson said. There are about 540,000 real estate agents and brokers statewide. Most do not belong to the organization and cannot call themselves Realtors.”

“Much of this year’s focus will be on environmentally sound building practices and sustainable living.”

A report from the New York Times. “After several tumultuous weeks on Wall Street, New York City seems increasingly likely to fall into recession, many economists and analysts say. To get a sense of what that might look like, one need only cross the Hudson River. New Jersey’s economy has already slipped into reverse. Its biggest employers have stopped hiring, and some have started firing. Its unemployment rate is rising fast, and the values of its houses are falling even faster.”

“Perched on a pink vinyl seat in the first booth of his roadside diner here, Gus Thermenos can hear and feel the financial fear gripping his customers. A foursome of men who worked at the nearby campus of Bear Stearns had been lunchtime regulars, Mr. Thermenos said, gesturing toward an empty booth over his shoulder. But they stopped coming a few months ago. ‘Three of them got laid off,’ he said.”

“With one young child and a second on the way, Mr. Thermenos was also fretting about the falling value of the house he bought in Hackettstown, about 20 miles west. After paying about $500,000 two years ago, he said, it was unsettling to see similar houses now being listed for $400,000 to $425,000.”

“‘How could you know?’ Mr. Thermenos said. ‘We didn’t see this coming.’”

The Courier Post from New Jersey. “A plan to create an estimated $40 million trust fund to help New Jersey residents who have subprime mortgages avoid losing their homes is instead creating a growing controversy. ‘The process being suggested is too costly and too onerous, and it could stop businesses from lending in New Jersey,’ cautioned E. Robert Levy, executive director of the Mortgage Bankers Association of New Jersey.”

“There were more than 134,000 subprime mortgages in New Jersey as of June 30, and 32.5 percent of them were in foreclosure or close to it, according to the Mortgage Bankers Association National Delinquency Survey. The state’s housing and mortgage agency estimates another 10,000 to 20,000 subprime loans will fall into these categories over the next two years if the situation continues unabated.”

“‘I don’t think the individuals who were trying to secure these loans thought that at some point they were going to lose their jobs to the degree that jobs have been lost, that the values of their homes were going to decrease to the point that they are less than the money that they owe,’ said Assembly Majority Leader Bonnie Watson Coleman, D-Mercer, before the Assembly Budget Committee last week.”

Gannett New Jersey. “New Jersey homeowners, chiefly the middle class…have to face the twin horns of a much larger beast declining wages and the rampant growth of property taxes. Call it the Jersey Squeeze.”

“The bite that property taxes take out of a homeowner’s wallet is up nearly 40 percent since 2000, a Gannett New Jersey review of state and federal tax data found. And property taxes are on track to claim, on average, nearly 10 cents out of every dollar earned this year — the highest rate in the nation. The New Jersey rate was 7 cents in 2000. The average New Jersey income is actually down about $2,600 from 2000, when adjusted for inflation, according to federal income tax data and estimates for 2008.”

“Douglas S. Massey, professor of sociology and public affairs at Princeton University… and his colleagues in September found that New Jersey has a split-personality economy. Housing costs, property taxes and other expenses are driving low- and moderate-income families out of the state, but at the same time attracting high-income workers who traditionally push up the price of real estate.”

“‘I think the long-term pressures have been toward greater inequalities in income and wealth, and that is reflected in housing,’ Massey said. ‘Geographically, we have become more unequal.’”

The Baltimore Sun from Maryland. “The decline in home prices in the Baltimore metro area accelerated last month - the average fell below the 2005 figure. The average sale price in Baltimore and its five surrounding counties dropped to about $296,000, according to numbers released yesterday by Rockville-based Metropolitan Regional Information Systems.”

“Moody’s Economy.com estimates that nearly 10 percent of homeowners in the Baltimore metro area owe more than or exactly as much as their properties are worth. That’s about 7,700 homes.”

“‘There are areas of the country where … there are many more homeowners underwater than Baltimore,’ said Mark Zandi, chief economist of Economy.com. ‘But all the indicators of affordability would suggest, and inventory would suggest, that prices need to fall more.’”

“Louren Reddick and a partner converted a Baltimore church into four condos, and he’s hoping to get a buyer for the last one by dropping the asking price from $369,000 to about $332,000. The two-bedroom, 2 1/2 -bath property originally hit the market in January 2007. The promise of property taxes frozen for the next 10 years thanks to historic tax credits wasn’t inducement enough.”

“‘If I have to give 10 percent off to move a property, I’m prepared to do it,’ said Reddick, of Frenchman White Corp. ‘I’m basically selling it at cost. … I think right now, you’re getting the best prices you’ve seen in the last 10 years, maybe even longer.’”

“Because buying typically slows down between Thanksgiving and New Year’s Day, this is the time for sellers to act if their asking prices are too high, said Ross Mackesey, a VP at Coldwell Banker in Baltimore. ‘You’re going to wait a while if you don’t do something now,’ he said.”

The Washington Post. “The current crisis is a rude awakening after years of charmed prices and quick sales. Sellers become depressed as their homes stagnate on the market. They get insulted when they receive lowball offers. Buyers feel entitled to a deal and fret about finding the bottom of the curve. The process has become so emotional on both sides that psychologists rank it on par with divorce and even death.”

“‘In this particular climate, I think emotions are the key factor,’ said David Eigen, a California psychologist who has studied the housing market. ‘And the emotions are capital F-E-A-R.’”

“But sellers are not the only ones with outsize expectations. Kathryn Higgins, a New York real estate agent who has a master’s degree in psychology, said buyers have become self-righteous during these economic doldrums. Those who have the cash for down payments and are preapproved for loans feel that they are ‘part of a privileged class,’ she said. She cautioned buyers against becoming too demanding.”

“‘Just because you have the money and you have the mortgage, the seller’s not going to give it away,’ Higgins said.”

“Alicia Caine of Hyattsville moved to the Washington area about 10 months ago and has been hunting for a home in the $300,000 range in Prince George’s County. About two months ago, Caine found a promising prospect in Riverdale. It had been on the market for a while, and the price had dropped accordingly. She bid $5,000 below the list price and asked for help with closing costs. She was soundly rebuffed. Caine then upped the ante to $1,000 above asking, though she still requested some closing help.”

“Still no deal. ‘If you’re not willing to take the asking price, then you shouldn’t have dropped it that low,’ Caine said. ‘I felt like I was being jerked around.’”

“She checked on the house later and found the seller had raised the asking price. The house has since gone off the market, and Caine has become so worried about the state of the economy that she is no longer looking to move.”

“Fairfax’s median sales price was $375,000 in August. That’s nearly a 22 percent drop since August 2007. The last time prices fell lower was in April 2004, said John McClain, a senior fellow at George Mason University.”

“Prince William and Loudoun counties…have been devastated by an unusually high share of aggressively priced foreclosures. Sales in those counties have been climbing for a few months as buyers have been snapping up deals. In Prince William, the number of homes sold shot up 100 percent last month as prices plummeted nearly 42 percent since last year to $251,384. In Loudoun prices dropped 24.6 percent to $335,000, and sales rose by 28 percent.”

“In Fairfax County, about half of the homes for sale are bank-owned properties, said Barry Merchant, senior policy analyst at the Virginia Housing Development Authority. Unemployment in both Virginia and Maryland rose 0.2 percent to near-record highs in August, according to the Bureau of Labor Statistics, a decline experts attribute to the collapse of the housing market in recent month.”

“According to the D.C. Department of Employment Services, 23,600 people were unemployed in August. The number of wage and salary jobs dropped by 400. Contracting, transportation, utilities and information services were among the sectors that lost jobs.”

“‘We’re starting to see people pulling back — they’re not filling jobs they had before,’ said Barbara B. Lang, CEO of the D.C. Chamber of Commerce.”

“Jobs are up in contracting, hospitality, government and health care, but down in construction, telecommunications and transportation, said William F. Mezger, chief economist at the Virginia Employment Commission. ‘What’s surprising in a good area like Northern Virginia, the duration of unemployment is several weeks longer than not-so-good areas,’ Mezger said.”

The Virginian Pilot. “Beth Soliz and her husband purchased their Portsmouth home in 2006 for $252,000. In July, Soliz’s husband was offered a promotion that meant moving to Annapolis, Md. ‘We originally listed the house at $250,000, just to break even,’ said Soliz.”

“When no offers came, the couple worked with their mortgage company to see whether it would let them sell the house for less to pay off the loan.”

“Figures from Real Estate Information Network show just 153 homes have been sold short this year in Hampton Roads. An additional 352 homes currently on the market are listed as short sales. That’s about 2 percent of the nearly 15,000 homes on the market in the region, but real estate experts say those numbers just scratch the surface.”

“‘We’re seeing it more now than we ever have,’ said Steve Rockefeller, vice president of SunTrust Mortgage’s Virginia Beach office.”

“Rockefeller said the long waits during a short sale are caused in part because banks’ lending divisions are swamped with work, dealing with both foreclosures and short sales. ‘There is tremendous volume and backlog,’ he said.’

“Kim Johnson, an agent for Prudential Decker Realty, said dealing with short sales in this market is almost becoming unavoidable. ‘In Northern Virginia, you almost can’t participate in the real estate market unless you deal with short sales,’ she said. ‘Here in this market people could kind of pick and choose.’”

“Some simply cannot afford their monthly payments, whether they took on too large a loan or the interest rate reset on their adjustable rate mortgage. Some have lost a job. Others, such as the Solizes, need to relocate. With no buyers, the Portsmouth couple realized a short sale was the only option, Beth Soliz said. ‘Walking away from it just wouldn’t work.’”

“The couple eventually sold the house for $226,000 and plans to repay the difference to the bank.”

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