The Housing Bubble

The San Diego Business Journal reports from California. “The number of home sales in San Diego rose more than 56 percent in September, compared to September 2007, as median home prices fell by more than 30 percent in the same period, MDA DataQuick reported. The median price of a San Diego home or condo fell to $328,000 last month, compared to $470,000 in September 2007. MDA DataQuick President John Walsh cautioned that the housing market has yet to respond to the financial crisis that erupted last month.”

“‘You have to view last month’s sales in the proper context,’ Walsh said. ‘They represent escrow closings, which reflect purchase decisions made in mid- to late summer. That was before the dramatic worsening of the nation’s economic crisis in recent weeks. Over the next few weeks, our sales data will begin to show how the meltdown in financial markets this fall has impacted housing demand.’”

The Whittier Daily News. “The 20,497 homes and condominiums sold in the six-county Southern California region was up 5.8 percent from August and 64.6 percent from the 12,455 sold in September 2007, according to MDA DataQuick. Given the economic struggles and prolonged slump in the housing market, the bar compared to last year already had been set pretty low.”

“‘The pitifully low September 2007 sales numbers were not hard to beat,’ DataQuick President John Walsh said in a statement.”

“The resales were highest in areas with the highest foreclosure rates. Riverside County topped DataQuick’s list with the highest resale rate (68.9 percent of all sales), followed by San Bernardino County (63.1 percent); San Diego County (47.3 percent); Ventura County (44 percent); Los Angeles County (39.1 percent); and Orange County (36.8 percent).”

“That demand likely won’t remain as intense, said Steve Johnson, Southern California director of Metrostudy. ‘I’m not sure we can sustain that activity,’ he said.”

The Press Enterprise. “A flood of discounted foreclosed properties spurred record year-over-year increases in home sales last month in Riverside and San Bernardino counties, while the median price throughout the Inland region fell almost 37 percent. The median price of homes sold last month was $237,000 in Riverside County and $205,000 in San Bernardino County.”

“Bank-owned homes constituted almost two-thirds of sales of existing homes in Riverside and San Bernardino counties.”

“Steve Johnson, director of MetroStudy, a Riverside consultant to developers, said although builders have reined in construction and lowered their prices, at the current sales pace it would take another eight months to sell what they have if no more homes were built.”

The Associated Press. “John Husing, an economist with Economics & Politics Inc, said the ample supply of discounted, foreclosed homes has kept downward pressure on prices. Once foreclosures start drying up, prices will stabilize, but that could take another year, he said. ‘The flow of foreclosures is enough to meet demand,’ he said.”

“Andrew LePage, an analyst with MDA DataQuick, said it’s hard to estimate how many mortgage defaults were still in the pipeline. Some lenders are simply jammed with a backlog of paperwork, and the number of defaults by prime mortgage holders is increasing, he said.”

“The September sales figures largely reflect purchase decisions made during the summer. ‘The numbers don’t reflect the sheer terror of the last three weeks,’ Husing said.”

From WBIR. “Here’s a rare sight, a sold sign on an L.A. County house. In fact homes had their highest year to year sales gain ever. 65% increase. But the median price dropped to $308,500 dollars, much less than the over $500,000 last year. And homes in foreclosure counted for 39% of these home sales.”

“Realtor Denis Bolen says ‘it’s great news. A lot of people are taking advantage of wonderful sales right now. Admittedly a lot of them are foreclosures and then there’s a certain percentage that are short sales. But, the bottom line is that a lot of people are finding homes and it’s great news for the real estate industry.’”

“Elsewhere, Circuit City said it’s closing 150 stores. Thousands of jobs will be lost. All over LA, signs of recession and weak sales are everywhere. It’s too late for Shoe Pavilion. It’s closing down its chain. Thousands of employees losing their jobs. In fact sales of new shoes have fallen dramatically because many people are choosing to fix up their current shoes.”

“So, Victor’s Shoe Repair in Burbank, doing okay. Shoe repairman Isaac Goli says ‘there’re fixing them. They’re taking their shoes from their closets and saying ‘if I can fix this shoe for 20 bucks, 30 bucks, or go by a new shoe for 110 bucks’. So they’re just fixing them to get by for the mean time to see what’s happening.’”

The Press Democrat. “A study issued Monday by the construction industry estimates the Sonoma County economy lost $151 million in reduced spending and more than 900 building-related jobs last year as a direct result of the sharp drop in housing starts.”

“‘Home building is a big employer and a big economic engine that’s almost run out of gas. We’re at the lowest point we’ve been at since World War II. So it’s not too good,’ said Robert Rivinius, CEO for the California Building Industry Association.”

“Across California, more than 1 of every 4 workers in construction companies and affiliated firms lost their jobs last year, according to the study. The slump wiped out more than 74,000 construction and affiliated jobs last year. A quick turnaround is unlikely, Rivinius said. ‘We are off dramatically again in 2008, and prospects for 2009 really don’t look much better,’ Rivinius said.”

The Mercury News. “The report, quantifying the economic benefits of housing, was issued Monday by the California Building Industry Association, which called on lawmakers to make the housing recovery their top priority. ‘The declines are staggering,” said Ryan Sharp of the Sacramento Regional Research Institute, which prepared the report. ‘Some of the hardest hit areas include Southern California’s Inland Empire, where the output totals and employment impacts fell nearly 50 percent from 2006 to 2007.’”

“Economic output from new home construction in the state peaked at $68 billion in 2005, dropping to $55.2 billion in 2006 and $39.7 billion in 2007, the study found. Residential building permits, which exceeded 212,000 in 2005 in California, shrank to 161,000 in 2006 and 110,000 in 2007.”

The Record Searchlight. “The Redding Redevelopment Agency on Monday night unanimously endorsed the idea of granting $1.2 million in subsidies for affordable housing in a large new subdivision proposed for the north side of town by a private, for-profit developer. The agency also voted 4-1 to approve a $476,000 loan for three second-story affordable apartments in the Gateway Building, proposed at Market and Shasta streets downtown by another private, for-profit builder.”

“Some agency members had misgivings about the idea of subsidizing new homes in a large subdivision when Redding has built up nearly a year’s worth of housing inventory since the market downturn started in 2006. Agency board member Dick Dickerson said he wanted more information on where low-income household fit in today’s real estate market.”

“‘We need some strategies on how we can best use redevelopment money to meet the needs of today’s market, not what we were doing a few years ago,’ Dickerson said.”

The Merced Sun Star. “From an empty dusty field just outside of Livingston, the Diablo range and orchards take up most of the view. The only signs of the nearby town are the tan buildings of one of Livingston’s new developments. But if all goes according to plan, this piece of farmland could sprout houses instead of crops.”

“‘Now the tentative map and development agreements are moving forward for annexation and pre-zoning,’ said Donna Kenney, Livingston’s senior planner.”

“It may seem an ill-timed project, but it’s been in the works for several years, she said. Besides raising property values, said Kenney, the project would have several positive effects on the city.”

“Bill Nicholson, executive officer of LAFCO, says his organization has yet to see any application for the annexation. LAFCO, or the Local Agency Formation Commission, is a state body that has jurisdiction over cities’ annexations. Before the city moves forward, LAFCO would have to answer several questions: Does the city have a lot of empty land already? Does the land in question have adequate access to sewer and other utilities? And, finally, is there a need?”

“Because the market is so weak, a lot of land is being sold off whether they are involved the annexation process or not, said Andy Krotik, a local Realtor. Once owners start the process — the environmental impact reports, the planning documents — they don’t want to stop and then have to start all over, regardless of whether they’re selling the land, said Krotik. ‘Once you jump off the diving board, you can’t go back,’ he said.”

“In any case, the landowner has almost five years in which it can extend its plans before it must start over, said Krotik. If times are bad, the landowner can wait it out.”

‘Just down the road from the property is Doreva Produce. Aaron Silva, the manager at Doreva, said he’d heard the land was for sale. As for annexation, he said it seemed a little premature when there are clots of empty houses in town, and people being foreclosed across the county.”

“It will be a long time till anyone develops those lots, he said. Even so, ‘Everything is for sale that’s got dirt on it.’”

The San Francisco Chronicle. “A subdued and noticeably smaller group of mortgage bankers gathered at Moscone West this week for the Mortgage Bankers Association’s 95th annual convention and expo.”

“‘It’s dead,’ said Dean Williams, CEO of real estate auction company Williams & Williams, who was attending his fifth MBA conference amid a sea of black suits and somber faces. ‘These are the people who look good and smile and make loans. This is a very startling year for the mortgage industry and mortgage bankers. It’s questionable what their role will be in the future. The mood is shell shock.’”

“The new chief executives of Fannie and Freddie, along with their head regulator from HUD, talked about how they plan to improve liquidity in a frozen credit market and help stem a tidal wave of foreclosures. ‘There is no doubt the pendulum swung too wildly in the last couple of years on taking risk,’ said Jim Lockhart, director of the Federal Housing Finance Agency, which oversees Mac and Mae. ‘Underwriting standards fell. Risky mortgages were undertaken. Action needs to be taken to make sure the pendulum doesn’t go too far the other way.’”

“Kieran Quinn, the Mortgage Bankers Association’s chairman, addressed what went wrong with home lending, leading to the current crisis. ‘It was a golden age of finance. We thought we had solved everything,’ he said. ‘Everyone just believed that housing prices would just keep climbing. All this led many folks to belief that leverage was safe, so they became more highly leveraged. Guess what? It was not safe. Today we are going through the most painful de-leveraging in the history of finance.’”

“MBA members attending the conference said they’re still adjusting to new realities. ‘Mortgage money remains frozen,’ said Patricia Arvielo, VP of operations at a medium sized lender from Irvine. ‘Yes, there’s some out there, but it’s only a trickle and it’s only for the few.’”

“She said her company receives about 4,000 calls per month, and only about 40, or 1 percent, can qualify for a loan.”

“A noisy but contained protest greeted delegates to the Mortgage Bankers Association’s 95th annual convention, which began Monday at Moscone Center, as the real estate finance industry is tarred by association with a housing market that’s collapsed like a deck of cards along with the financial strife that followed.”

“Consumer anger was palpable Monday morning when about 40 protesters greeted some of the early attendees of the mortgage bankers’ gathering. Marching before the conference center, they carried signs saying ‘Jail them, don’t bail them’ and ‘Grand theft bailout.’ A steady stream of slogans and chanting accompanied the signs, laying blame at the gathered industry.”

“Around downtown, as the conference got under way, passers-by said they thought that greed is the root of the crisis, which has spread globally. ‘It was greed, arrogance, overconfidence,’ said Henrik Amneus, a tourist from Stockholm, Sweden, walking through Yerba Buena Gardens. ‘Incompetence also, basically, at the bottom of it.’”

“‘They were taking a chance - chancing that this would not be revealed,’ said his wife, Anne, referring to risky mortgage investments.”

“‘No one was watching the store,’ said Bob Stice of San Francisco and Malibu. ‘The trouble is these guys (in Congress) have been getting so much money from the banking institutions, so they have been very friendly,’ said Stice, who said his own considerable stock portfolio is down 35 percent. ‘To see a life’s work, 35 percent of it, just go away because of some really stupid investments on the part of people we relied on - the banks.’”

“Mike Detwiler of Denver, whose company writes software for mortgage bankers, said he agreed that the $700 million bailout was inappropriate.”

“‘The government should let the system work itself out,’ he said. ‘I don’t agree with the government intervention because I don’t know where it stops. When you are putting $700 billion in, then what? They say they have a plan now, but there is no empirical evidence that it is going to change anything. Once you start getting a handout, where does it stop?’”

The Great Falls Tribune reports from Montana. “Zahara Valley Golf Club and a nearby residential development were hit by the national economic downturn and the credit crunch, but things are looking brighter, officials said. The golf course closed early this year, sparking rumors that it would close for good. That’s not the case, said Brad Davey, development coordinator for the housing development. ‘This economy just really kicked us, just like it did everyone else,’ said Davey.”

“Davey said that while the course isn’t on the open market, Zahara Valley did recently sell some of its equipment. ‘We had way too much stuff,’ he said.”

The Idaho Statesman. “September was the third month in a row in which default filings increased in the Treasure Valley. From January through September, 3,662 foreclosures have started in Ada and Canyon County, a 137 percent increase over the same period in 2007, according to Idaho Data Providers.”

“‘The filings during the first part of October are pointing toward another record month,’ said Charlie Nate, president of IDP. ‘In fact, I am projecting that locally we may see over 500 new foreclosures in October. That number was incomprehensible only one year ago when we were already well into this crisis and only experiencing just over 200 filings a month.’”

“‘Lenders are beginning to foreclose on spec homes,’ said Lance Churchill, president of Frontline Cos., which specialize in buying homes in foreclosure. ‘It looks like the banks are finally losing their patience with the builders.’”

“‘It is a double edge sword,’ Churchill said. ‘There are so many of them that there are a lot of great opportunities if you want a home to live in. But flippers are having trouble because there are fewer buyers and it is much harder to fix a house up and sell it.’”

“Capitol West Appraisals of Boise says in a lawsuit filed in U.S. District Court in Seattle that Countrywide Financial loan officers pressured its appraisers to increase valuations or otherwise compromise appraisal standards in three loan transactions and, when the company refused, Countrywide put Capitol West on its ‘Field Review List.’”

“‘Countrywide is in a position to force out of the business honest appraisers,’ said Steve Berman, the lead lawyer in the case. ‘They can use their market power to basically blackball these people.’”

The Register Guard from Oregon. “While Oregon-based banks have fared better than counterparts in some other areas, they have not been immune. The Legislative Emergency Board last month approved a request by state regulators to increase the state’s existing staff of 12.5 bank examiner positions by 40 percent. The letter requesting the additional positions revealed much about the condition of Oregon banks. It pointed out that of 22 banks examined by the state in the past year, 10 received ‘less than satisfactory’ composite scores in the confidential rating system used by both federal and state regulators.”

“‘We’ve all gotten a black eye from some of the things that have happened in the brokerage firms,’ said Tom Widmer, CEO of Eugene’s Century Bank.”

The Mail Tribune from Oregon. “The collapse of the credit and housing markets has put a halt to resort development in central Oregon. ‘With the state of the economy, we’re not going to see new resorts in the next couple of years. That’s an absolute certainty,’ said Steven Hultberg, a Bend attorney who represents several resorts.”

“In recent years, new resorts such as the 1,800-acre Brasada Ranch between Bend and Prineville boasted of selling more than 200 lots for between $200,000 and $450,000 in a matter of hours. Now those buyers have disappeared.”

“At the upscale Pronghorn resort east of Bend, partner Scott Denney likes to share the story of one of his buyers, a person with excellent credit and worth hundreds of millions of dollars who was seeking a loan for a $625,000 lot. First the bank told him he’d have to put 25 percent down. Then it was 40 percent, and finally it was 60 percent.”

“‘”Right now the banks are just taking a position that they are not in the real estate lending market anymore,’ said Dennis Pahlisch, a Bend home builder and partner in a proposed 4,125-acre resort in Crook County.”

The Oregonian. “The deal that Gresham City Hall brokered to build the first phase of residential development in Pleasant Valley is ‘very unlikely’ to go forward now that Pacific Lifestyle Homes Inc., one of its three private partners, has filed for Chapter 11 bankruptcy, the city’s executive manager said.”

“Pacific Lifestyle owns 37 acres in Pleasant Valley. Matt Lewis, the company’s planning manager, said he wasn’t sure how it would be disposed of as part of the company’s larger restructuring. ‘Unfortunately the downturn in the market didn’t allow the private sector to make the needed investments,’ he said.”

The News Tribune from Washington. “How’s the market for condominiums in downtown Tacoma? ‘What market?’ says Judy Mayfield, head of sales for The Esplanade, the 162-unit project on the Foss Waterway, now nearing completion. After two years of extolling the virtues of the nine-story luxury project, Mayfield and her staff have yet to close a deal on a single unit.”

“Median prices of downtown condos dropped more, too, going from $274,000 in the first three quarters of 2007 to just $224,000 in that period this year. ‘The timing couldn’t have been worse,’ Mayfield said.”

“This weekend, a dozen new condominium projects in the downtown area, The Esplanade included, will open their doors for the sixth annual Tour of Urban Living sales event. That’s fewer participants than in past years, said Debbie Bingham, the City of Tacoma community coordinator who helped organize the tour. The reduction is not because there are fewer new projects, Bingham said, but because some developers decided economic conditions were so bad it wasn’t worth putting up the marketing costs.”

“About half of the projects on the tour are finished; the rest are in various stages of construction. J.J. McCament, who worked with the City of Tacoma for six years to recruit condo developers to the downtown area, remains confident in the long-term condo market and says, bad as things may seem, the current situation is just a pause in the action.”

“‘This is a normal predictable market correction,’ she said. ‘I think that our pricing was starting to get out of adjustment with the wages in the area.’”

“Jim Allotta is in a tough industry. His business, Allotta Appraisal Services, has faced some challenges in the past year including a declining housing market and predatory lenders who try to dictate appraisers’ work. The previously booming housing market brought appraisers who didn’t know much about the process and told lenders what they wanted to hear.”

“Q: What role did appraisers have in this?”

“A: Before we hit the crunch, we had a period of extremely fast appreciation in the industry. Real estate was appreciating faster than any time in history. A lot of the predatory lenders took advantage of the fact that we are in a turmoil with respect to the appraiser process – prior to that a lender would choose an appraiser based on the quality of work. But when we went through this rapid appreciation, there were no holds barred. New appraisers were coming into the industry not ever appraising before … and it’s just like shooting fish in a barrel.”

“They got in the industry and they were immediately successful. And the more successful they were was because they didn’t know how to appraise correctly, but they were appraising to numbers instead of the characteristics of the property.”

The Seattle PI from Washington. “The tower cranes piercing Seattle’s skyline won’t vanish because of the banking crisis, say local developers, architects and commercial banks. But economic woes may cut the number of new cranes. ‘All the cranes in the sky now are likely projects approved by banks over the past 18 months,’ said Tracy Edgers, senior vice president of Wells Fargo Bank, a significant source of Seattle construction lending. ‘My guess is you won’t see too many new cranes going up any time soon.’”

“‘There are fewer lenders making loans today, so we’re taking the lower-risk transactions — the best-conceived projects, being built for something there will be demand for,’ Edgers said.”

“To justify a loan, a proposed building might have to generate more income for a given level of debt than was true a year ago, said Edgers. ‘What’s going up now has to be absorbed — condos have to be sold, office space has to be leased.’”

The Seattle Times from Washington. “Thousands of desperate homeowners — people like David Hall and Cheryl Miller — have fallen behind on their house payments and face foreclosure. They’ve turned to their lenders and local housing-counseling agencies for help, quickly overwhelming both. Statewide, August foreclosure activity was up 64 percent from the previous August, reported RealtyTrac. That represents 2,762 households in the state in trouble.”

“‘This is terrible,’ Miller, a county employee, said of the descent into foreclosure. ‘I’ve never seen anything like this.’”

“It’s a far cry from the experience of buying their Auburn home in 2006, Miller said. ‘The most exciting thing in the world … like having a new child or winning the lottery’ is how Hall described the purchase.”

“When her adjustable-rate mortgage reset, the payments on Carol Clark’s Kent condo rose from $1,297 to $1,825, including homeowners’ dues. A single mother with a good job and two kids in college, Clark fell behind. Late fees added to what she owed, putting her farther behind.”

“‘I can afford my home if it gets refinanced at a fixed rate,’ she said, hopefully.”

The News Miner from Alaska. “The number of single-family homes sold this autumn in Fairbanks is almost 4 percent less than the numbers from last fall, according to the Greater Fairbanks Board of Realtors. The average reported sales price of $215,967 in the borough was down by about 4 percent from last fall.”

“Gwendolyn Jenkins is finally set to close the sale of her family’s Harvard Circle house next month after watching it sit on the market since mid-summer. Jenkins, who is set to move with her husband and children to the San Diego area to be close to family and take advantage of rock-bottom California home prices, said she grew nervous after hearing of an eight-month backlog of homes for sale in Fairbanks this summer.”

“‘We’d talked to numerous other people that have had their houses on the market. And they are just having terrible luck,’ Jenkins said.”

“Alaska Housing Finance Corp. chief Dan Fauske said the statewide housing market may be slower than during red-hot construction years earlier this decade but stressed that it remains relatively stable. ‘When you’re doing 100 miles an hour and you slow down to 55, it seems slow,’ Fauske said. ‘So you have to caution people, ‘Look, we’re back to normal.’ … It doesn’t mean we’re in a decline.’”

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