The Housing Bubble

The Jackson Hole Daily reports from Wyoming. “Jackson Hole’s real-estate market has buckled under the weight of the economic downturn and new lending rules, a recent report says. The biggest evidence of the slowdown is in the single-family-home market. The number of sales is down 49 percent for the year, and dollar volume is down 44 percent. The number of homes under contract is down 46 percent when compared with this time last year, while the median asking price is down 23 percent to $1.88 million.”

“Of 281 single-family homes currently for sale, 56 are being offered for less than $1 million. ‘That’s a 500 percent increase over the third quarter of 2007, when only nine homes were listed for under $1 million,’ wrote David Viehman.”

“The least expensive home is a 1,360-square-foot house built in 1981 on a 0.21-acre lot in Rafter J for $595,000.”

“‘Sellers are not motivated to go below their 2007 values, so they in turn can’t or won’t buy their replacement property,’ Viehman wrote. Viehman wrote that sellers should determine what the last comparable sale price was and list for 5 percent to 10 percent less. ‘Savvy buyers are out there, but they are looking for bargains,’ he wrote. ‘Consider this: If you can mentally accept losing some equity when selling, you will probably make it up on your next purchase.’”

The Great Falls Tribune from Montana. “Months before the phrase credit crunch was coined, some mortgage products began disappearing. Things such as no down-payment-loans were pulled by lenders, shutting the window for some would be homeowners. That is pushing people who may have otherwise bought homes into the rental market.”

“Kim Meyers of Macek Property Management, which has about 120 residential rentals, said the demand for rental housing in Great Falls began increasing about a year ago. ‘We have seen more people who need a rental because they have property in another state that hasn’t sold yet,’ Meyers said.”

“NeighborWorks, which works to assist moderate income individuals and families become homeowners, has seen an upswing in demand for homeownership classes, said Carrie Koppy, the agency’s grant writer. ‘I think we are seeing people who in the past may have applied for no-interest loans coming to us now that those are no longer available,’ she said.”

The Idaho Statesman. “Christopher Thornberg, founding partner of Beacon Economics in Los Angeles, spoke at a real estate and development conference sponsored by New West. David Eacret, a real estate economist from Sandpoint, who predicted real estate prices will bottom out in late 2009…said ‘urban refugees’ will again flow to Idaho and other Rocky Mountain states. ‘People do want to live here,’ he said.”

“But high-end real estate in ‘amenity’ communities like Bonner and Valley counties is vastly oversupplied. In one master-planned community in Bonner County, Eacret said, not a single house has sold in 2008 in the $800,000 to $1.4 million range, and the builder is out of business.”

“Only after stability returns to California and Nevada will that market rebound, he said: ‘If you can’t sell your house in California or Las Vegas, you can’t buy a second home in our area.’”

“Thornberg says Idaho will struggle with foreclosure woes for two to three years. Currently, 1.6 percent of Idaho mortgages are 60 to 90 days delinquent. ‘Housing markets don’t bounce, they splat,’ Thornberg said. ‘And so when it hits bottom, it stays there for a couple of years. And we probably won’t see any substantial increase in prices until 2011. Remember, we were in an economy that was on an unsustainable path,’ said Thornberg.”

“Economic and financial woes are crimping DBSI, a Boise real-estate investment company that is delaying payments to some investors and says its income from some rental properties is no longer enough to cover debt payments. DBSI’s real estate business is shrinking, and it can’t get credit to bridge the gap.”

“‘We have seen a dramatic decrease in new business due to a steep decline in the number of people selling real estate and looking for like-kind exchanges or other real estate investments,’ said President Doug Swenson. ‘We are also seeing decreased occupancy and increasing tenant defaults because of the economic slowdown and lack of consumer confidence.’”

“Kastera Homes, a home builder in the Treasure Valley, is a DBSI subsidiary. Kastera laid off an undisclosed number of people in June. At that time, a DBSI marketing executive said Kastera wouldn’t be affected by DBSI’s restructuring.”

“While the company is updating its blog, it is not answering calls directly, and word on DBSI chat rooms is that regular payments to some investors have been suspended. Some are suspicious of the company’s behavior. ‘This is a lot of hard-earned money, and I’m really frightened,’ Tim Brophy, of Palm Springs, Calif., told the Idaho Statesman. ‘This is a lot of my retirement.’”

The Oregonian. “Home prices in Portland, once considered untouched by the nation’s housing downturn, posted another record decline in August in the Standard & Poor’s Case-Shiller Index published Tuesday. The index showed Portland-area sale prices fell 7.6 percent in August compared with August 2007. That’s the biggest annual drop since record keeping began in 1987. Seattle also posted a record decline of 8.8 percent.”

“‘The problem right now is the economy is going dead and it’s going dead everywhere,’ said Patrick Newport, U.S. economist at a Massachusetts-based economics firm. ‘Going forward, I think everywhere things are going to get worse, including Portland and Seattle. It’s a lot harder to get a loan now than it was two or three months ago, and it’s getting harder.’”

“On average, the Case-Shiller index shows that Portland-area home prices are still up about 72 percent since January 2000. That said, people who bought a home after March 2006, on average, own a home that’s worth less today than when they bought it. The question left to answer in Portland is: How far do prices have to fall before they reach a point that’s sustainable?”

‘Tom Potiowsky, Oregon’s state economist, doesn’t expect Portland to fall as far as those Sun Belt cities. But he does think the numbers could get worse, given the region’s still bloated inventory of unsold homes. ‘It’s possible we could hit 10 percent or 12 percent,’ Potiowsky said. ‘I’d be surprised if it declined any more than that.’”

The Statesman Journal from Oregon. “Hampton Affiliates recently announced that it will lay off 50 to 60 employees at its Willamina Lumber Company mill about the end of October. The mill currently employs about 335 people. ‘As I have explained in the past, the lumber market is very poor and has gotten even weaker in the last 45 days,’ noted company CEO Steve Zika said in an e-mail. ‘Green Doug Fir (two by fours) is now selling for approximately $150 per thousand board feet versus $400 per thousand board feet in 2005.’”

“‘Willamina still figures prominently in Hampton’s long-term plans but with the market, and especially the California market this poor, we had no other viable options,’ Zika said. Housing-industry woes have necessitated the action, which may affect other Hampton operations. The company operates mills in Oregon, Washington and British Columbia.”

“‘These are unprecedented times in the housing industry,’ he said.”

From KVAL News in Oregon. “Lane County foreclosure notices have climbed 67 percent since last year (for the 3rd quarter), but that’s better than the national average of 71 percent. It’s much better than the Oregon average of 146 percent.”

“Eugene realtor Marie Due has been crunching the numbers. While the national statistics still look very dim, she says the mortgage mess is less messy in Lane County. ‘But we do see that the numbers of not only foreclosure filings but also houses going to auction, are really coming on a level,’ she said.”

“Russ Vann’s housing headaches began in 2006 when he had an accident and totaled his business truck. Just before that, he had refinanced the house. ‘It came out that they didn’t put my taxes and insurance in the impound, the escrow impounds,’ explains Vann. ”

“He adds his house payments soared from $1,300 a month, to $2,400. He defaulted on his payments. ‘It’s put a real damper on our outlook on life,’ Vann said.”

“Vann and his wife want to stay in Eugene, but it all depends on finding someplace to rent with bad credit. ‘We might even pitch a tent by the river,’ he said. ‘I don’t know. Don’t know where we’re going to be,’ he said.”

From Seattle PI in Washington. “Seattle-area house values continued their slide in August, falling 0.7 percent from July and 8.8 percent from August 2007, according to a national index. The Seattle area had the biggest annual declines, 9.7 percent, in the lowest value tier, which S&P defines as under $308,893. The high tier, over $445,285, was down 8.4 percent, while the middle tier declined by 8.9 percent.”

“Patrick Newport, U.S. economist for IHS Global Insight, noted in a statement that the latest S&P data did not yet reflect the recent turmoil in the financial market. ‘So as bad as the latest Case-Shiller numbers appear to be, they are bound to get much worse,’ he said.”

The Ballard News Tribune from Washington. “Ballard resident Gwyn Emery decided to sell her house on 28th Avenue Northwest in April after she got married. Half a year later, her house is still on the market. ‘When I bought my house a couple of years ago it was rare to see one on the market for more than a few weeks,’ Emery said. ‘Now the average in Seattle is six months.’”

“Paul Langer, who has been trying to sell his Ballard house for the past month, said he believes a lack of available loans is definitely affecting his ability to sell. ‘People can’t get the loans we got four years ago when we bought the house,’ Langer said.”

“David Arnesen, a professor specializing in real estate law at Seattle University, said in reality it’s a buyers market right now for people who can afford to put money down, but those people are nervous at the moment. ‘Buyers are being very cautious,’ he said. ‘Most banks today don’t have people lining up at the door to take out loans like they used to.’”

“Pat Redmond, president of Viking Bank, said the media is partially to blame for the insecurity of buyers. People are being constantly bombarded with projections of an economic crisis that they cannot escape, he said. ‘My concern is that we can’t keep confidence as high as it needs to be for success,’ he said.”

The Boston Herald reports from Massachusetts. “Massachusetts median house prices have fallen below $300,000 for the first time since 2003, new figures show. Wellesley College economist Karl Case doesn’t think Massachusetts housing has bottomed out quite yet, ‘but we may be closer to a bottom than most people think.’ However, Case added that, if the U.S. economy enters a deep recession, ‘all bets are off.’”

“Timothy Warren of the Warren Group, isn’t convinced that the market has bottomed out yet, either. ‘Foreclosures, tight mortgage-lending standards, job losses and a recession are all going to exert downward pressure on (housing),’ he said.”

The Telegram from Massachusetts. “The median home price dropped 15.6 percent last month to $287,500 from $340,750 in September 2007, The Warren Group reported. Moreover, third-quarter sales dropped to the lowest pace since 1991.”

“‘I have seen a lot more activity. There are different segments of the market, but I am beginning to see the savvy sages out there,’ said Jeffrey W. Hall, president-elect of the Worcester Regional Association of Realtors. ‘They’ve been flipping properties for decades. I think they see that we are in the bottom of the skid. They are very knowledgeable people who stay on top of the market, and do it for a living.’”

“Ms. Leonelli said she has a three-decker rental property listed in Millville for $89,000. ‘At that price you can’t lose,’ she said.”

“Andrea Moulton of Westboro has been looking at homes for a year and a half, and has watched the selling prices of properties she nearly purchased drop by thousands of dollars. ‘I’ve seen a huge change in the market, and I’m glad I didn’t buy then,’ she said. ‘What I purchased would have lost value. I’m in no rush to get into anything. Some sellers are still overpricing.’”

South Coast Today from Massachusetts. “In September, the median price of a single-family home in Bristol County was $250,000, 18 percent lower than the same month last year. Plymouth County’s median price declined by 14.6 percent to $287,000, and Barnstable County’s median price dropped 20.7 percent to $345,000, according to The Warren Group.”

“Bob Lima, broker in Dartmouth, said there has been a drop in the last three weeks in calls from potential buyers. Mr. Lima said the bad economic news this month is to blame. ‘I think people are scared to do anything,’ Mr. Lima said.”

“A home-buying fair called Opportunity Knocks…took place at Normandin Middle School and was sponsored by MassHousing and the Massachusetts Association of Realtors. ‘We’re trying to promote safe home ownership,’ said Goretti Joaquim, business development officer for the Massachusetts Housing Finance Agency. ‘There’s an overabundance of homes on the market, so folks have plenty to choose from.’”

The Belmont Citizen Herald from Massachusetts. “U.S. Rep. Barney Frank said Monday that fewer prospective homebuyers will qualify for mortgages as a result of the financial meltdown, calling that trend a positive byproduct because ‘tens of millions’ of people are not suited to own homes.”

“Chairman of the House Financial Services Committee, Frank said the market will likely encourage a large increase in affordable rental housing. Answering critics who said he was working to deny low-income people access to their own homes, Frank said, ‘I’m not denying them the right to own a home, circumstances are.’”

“‘We made a mistake as a society in promoting homeownership as a universal achievable goal,’ he said.”

The Herald from Connecticut. “Characterizing the current economic crisis as ‘the worst since 1932,’ Democrat Chris Dodd, senior senator from Connecticut, said he was committed to keeping families from ‘falling through the social cracks. The job will be challenging but we can do this.’”

“The senator vowed to step up his efforts to slow down the rate of home foreclosures (according to HRA, now at 1,000 a month in Connecticut) and to crack down on predatory lenders. In answer to a question from The Herald about releasing his own home mortgage information, Dodd said, ‘No one wants the bipartisan ethics committee to complete their work more than I do. That’s what I’m waiting for. Let them complete their work first.’”

“Earlier in the year, Dodd, chairman of the Senate banking, housing and urban affairs committee, praised Fannie Mae and Freddie Mac ‘for riding to the rescue to help people get home mortgage loans.’ He is also on record as saying they ‘need to do more to help high-risk borrowers obtain more favorable loans.’”

The Stamford Advocate from Connecticut. “U.S. Rep. Christopher Shays, R-Bridgeport, has turned to a different surrogate in his re-election fight against Democrat Jim Himes. The National Association of Realtors has pumped $804,371 into television advertisements and direct mail to support Shays, according to a Washington, D.C., organization that tracks the campaign money.”

“Only one other candidate, U.S. Rep. Paul Kanjorski, D-Pa., received more support from the nationwide association.”

“Though Shays acknowledged reaching out to the group, the 21-year incumbent said he didn’t expect it to deliver in such a big way. ‘I’m grateful for their assistance. I’m surprised by it,’ said Shays, a former real estate agent and former member of the association. ‘I’ve sought their help because I’m pretty much in sync with their views.’”

“Many left-wing political blogs have raised questions about the influence of special interests such as the Realtors’ group on Shays’ campaign, pointing to his support of a controversial bill that would overturn a Federal Housing Administration ban on seller-financed down payments on mortgages.”

“A spokeswoman for the Realtors’ group, which has 1.2 million members nationally and about 16,300 members in Connecticut, said the association decided to back Shays before he signed onto the bill. ‘It did not come into play in our decision,’ said Mary Trupo of the Realtors’ group.”

“Shays’ support of a measure that would that create a permanent firewall between the banking and real estate industries won him the backing, she said. ‘Think of where we are right now. Imagine if banks were in the real estate market and they were holding properties. It would be catastrophic,”‘ Trupo said. ‘It would offer unfair advantages to the banks.’”

The Connecticut Business News Journal. “According to the National Home Builders Association, the number of new-housing permits is a key indicator of future building activity - and in September, it has been down across the board. National numbers of housing starts have been released and the future looks - grim? Not so, says Liz Verna of Verna Properties in Wallingford, who chairs the Home Builders Association of Connecticut’s government affairs committee. ‘The 24-hour news media are bombarding people with negative messages about the real estate industry.’”

“Verna believes now is a better time than any other recent period to invest in residential real estate. ‘At the end of the day, people need a place to live - and people who are afraid to invest in the stock market should invest in real estate,’ she adds. ‘It’s the most lucrative investment, and it’s tangible.’”

“‘For other states like California, Florida or Nevada, things look bleak but we are still building in Connecticut, so it’s hard to equate [what's going on in] Connecticut to what’s happening nationally,’ adds Liz Verna. ‘It’s different.’”

The New York Observer. “Harlem condo sales plunged a staggering 76 percent annually in the third quarter of 2008, from 237 closed deals last year to just 57 for the three months ending Sept. 30. The slowdown in buying activity is opening a window for an oversaturation in the Harlem condo market, as several upscale projects like 119th & Third and Graceline Court at 106 West 116th Street are scheduled to open in the coming months.”

“The prospect of a drop in Harlem condo prices almost seems unimaginable to brokers and developers, especially considering that prices uptown are already substantially lower than in the rest of Manhattan. The median sales price for a new uptown condo was $560,000 in the third quarter, whereas the median price for a downtown one was $1,275,000, according to the Corcoran Group.”

“Brokers and real estate professionals working around Harlem…they remain cautiously optimistic that the newer condos will draw buyers. ‘I think Harlem will still gentrify, but I don’t think it will be at the same pace,’ Vie Wilson, an uptown-based senior vice president at Corcoran said. ‘It won’t stop, because we’ve gone too far to stop.’”

From Newsday in New York. “New York City has seen an explosion of suspected mortgage fraud reported by banks to law enforcement, according to government statistics. For 2006 and 2007, banks and other lenders nearly doubled the number of ’suspicious activity reports’ they made of possible mortgage fraud involving borrowers in the five boroughs, the data showed.”

“The increase…correlates with the way the housing market heated up in recent years, said FinCEN spokesman Stephen Hudak. ‘The banks are more aware of the issue,’ Hudak said. ‘From what we have seen just the increased volume of transactions leads to the [increased] suspicious transactions . . . the more transaction are up, the more opportunity for suspicious transactions.’”

The New York Post. “John Devaney, who be came the poster-boy for hedge-fund blow-ups when his $600 million fund went belly-up earlier this year after a wrong-way bet on the direction of the asset-backed securities index, was heckled off the stage in Miami last week during the annual confab for the asset-backed securities industry.”

“Devaney, who made no friends after his United Capital Markets’ flame-out left investors with zero payout, began to speak during a Monday morning discussion at the conference but soon began a rant on why the markets were wrong and he was right. The crowd began to boo and the microphone was taken away from him, according to several spies in attendance.”

From Bloomberg. “Hovnanian Enterprises Inc., the New Jersey homebuilder that has lost more than half its value in the past month, asked bondholders to reduce the principal on its debt in exchange for notes that pay a higher interest rate.”

“‘If you’re a bondholder, it’s a tough deal, but you might do it anyway,” said Vicki Bryan, (a) high-yield debt analyst for New York-based Gimme Credit LLC. Three of the biggest lenders to homebuilders, Wachovia Corp., Washington Mutual Inc. and Merrill Lynch & Co., are gone, pinching the companies’ access to capital, Bryan said.”

“‘If you’re one of the weaker links like Hovnanian, you are trying to make sure you have access to credit going forward,’ Bryan said. ‘The bondholders are being sacrificed, not the stockholders.”’

‘The largest stockholder is Kevork Hovnanian, who founded the company in 1959 and is the father of CEO Ara Hovnanian. He owned about 7.6 million shares, or 12 percent, on July 3, according to Bloomberg data.”

“In the event of a Hovnanian bankruptcy, holders of the new notes would be third in line, behind banks and holders of 11.5 percent notes issued this year, to be repaid, a higher position than holders of the current notes, said Frank Lee, a homebuilder credit analyst in New York. ‘That’s why I call this coercive,’ Lee said. ‘You’re asking bondholders to take a big haircut, and if they don’t take the haircut they don’t have any claim in a bankruptcy.”’

“Some of the bonds Hovnanian is offering to exchange are already trading for 40 cents on the dollar, Lee said.”

From Forbes. “When housing was hot, everyone in the industry, from home builders to mortgage lenders, reaped the benefits. Paydays were rich, and more and more job seekers flooded the business for a piece of the pie. Those days are gone, and so are the fat paychecks.”

“In a look at compensation over the past five years for 27 senior management job titles across 11 U.S. industries, mortgage-lending directors have had the hardest reality check. Their earnings were down 6.3% in the last five years to $101,400 in 2008. They are the only group in the survey to see a decline.”

“This was expected even before the U.S. housing bubble burst in 2006, according to Ed Buchser, president of Pine Brook, N.J.-based Atlantic Home Loans. He says the run-up in house prices caused ‘ridiculous increases in compensation.’ He sees a return to the norm. ‘People that jumped into the industry are finding that the industry doesn’t support them anymore,’ he says.”

“Dane Sinn, manager of survey operations at Compdata, says healthy consumer spending over the last five years spurred demand for finance and marketing gigs. The competition grew fierce and paychecks swelled. ‘In the coming year, it will be interesting to see how pay will be affected for these positions,’ Sinn says. ‘We have not yet experienced the full effects of the credit crisis.’”

“For all occupations, real estate and construction paid an average salary of $100,400 this year, while financial services jobs paid an average $98,700 a year. Says Sinn, ‘There will most likely be decreased demand for these positions.’”

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