The Housing Bubble

The Times Standard reports from California. “A new housing affordability index, released this month by the Humboldt Association of Realtors, shows Humboldt housing prices — recently overvalued countywide — have begun to dip. Fortuna showed the largest net increase in affordability, rising 19 percent between August and September of this year, and 26 percent between October 2007 and September 2008. In September, according to HAR data, 30 percent of households in Fortuna were able to purchase a home in Fortuna. That percentage is still significantly less than in April of 1999, however, when 60 percent of Fortuna households could afford a home in the city.”

“According to the index data, in September, the median sold home price in Humboldt County was $291,000. ‘Countywide, it’s not a staggering difference,” said Tom Hiller, president of HAR. ‘Each market is slightly different. We’re starting to see attractive deals throughout the county.’”

“Of course for sellers, the prospect of falling property values may not be as appealing. But Hiller said property values had been inflated to unrealistic highs, and the dip is a natural adjustment in the market. ‘In the short term, there’s been a reduction in equity,’ Hiller said. ‘But if people hang onto those homes, the prices will catch up with them.’”

“Thomas Bruner, an associate professor of economics at Humboldt State University, said he believes HAR’s findings are reasonable, and he expects affordability to continue trending in buyers’ favor through the winter. ‘I think January and February might be some of the best times historically, at least in the last 10 years, to buy,’ Bruner said. ‘If you have the money, this is the time to invest.’”

The Press Democrat. “Help is building to assist homeowners redo mortgages and avoid foreclosure, but questions remain about how far lenders will go as the toll of people losing homes mounts. Joan and Angela Ricci, a mother and daughter who own a Sonoma home, needed 14 months before their lender agreed to lower their monthly mortgage payment.”

“‘Everyday, I thought I was going to lose the house. I was a nervous wreck. Your life changes,’ said Joan Ricci. ‘We’ve been crying a lot.’”

“The problems for Joan Ricci began when she refinanced her home of 43 years in January 2007. Ricci was put into a subprime loan with a high interest rate — not the 30-year mortgage she expected — by an out-of-town mortgage broker who solicited her by phone. Daughter Angela Ricci stepped in, but couldn’t get the original lender, Argent Mortgage, to undo the loan. Citimortgage later purchased the mortgage.”

“They made the monthly payments, with Joan returning to work at age 70 and Angela taking on side jobs as a respiratory therapist. Family and friends also provided financial help. But by December, they could no longer afford the house payment. ‘We depleted every penny we had,’ Angela Ricci said.”

“The lender didn’t agree to specific terms until this month, lowering the interest rate to get the monthly payment from $4,600 down to $2,900. ‘It means we get to keep our home, which is what we wanted all along. But I have the burden of working everyday of my life to make the payment,’ Angela Ricci said.”

“Sandra and Octavio Lara weren’t as successful working with the lender on their Rohnert Park home. They defaulted on the loan and now their only hope to avoid foreclosure is to sell short, where a buyer pays less than what is owed on a home. The couple had an adjustable rate mortgage with Carrington Mortgage on their Rohnert Park home. The payments had risen from $3,000 to $5,100 when the couple stopped making the mortgage in October. The lender began talks over loan terms the end of December. Carrington Mortgage eventually agreed to lower the payment, but only by $800, leaving the family with a $4,300 monthly payment.”

“‘We asked them to lower the loan amount, if they were willing to finance it for what it was now worth. But they basically want their money,’ she said. ‘We couldn’t afford it anymore.’”

“Reducing loan balances to bring them closer to current home values could be an incentive for homeowners to struggle and make mortgage payments, said Kevin Stein, executive director for a San Francisco-based low income housing advocate. ‘If their debt is more in line with their home’s value, it reduces the number of people supposedly walking away from their homes,’ Stein said.”

The Sacramento Bee. “Sacramento County’s lowest-income neighborhoods continue to take the toughest, most destabilizing punches of the region’s two-year foreclosure crisis, says a new report from the Sacramento Housing and Redevelopment Agency. And it’s getting worse.”

“‘Foreclosures are continuing to increase,’ said Joel Riphagen, SHRA redevelopment analyst. ‘The common denominator of the hardest-hit areas is they are low-income.’”

“Sacramento County has seen banks repossess 14,054 homes the first nine months of this year – 5,643 in July, August and September alone, according to MDA DataQuick. That’s 73.5 percent of the capital region’s total. SHRA, which doesn’t count homes bought at auction, showed 4,670 third-quarter foreclosures.”

“Investors are snapping up homes formerly occupied by owners with intent of renting them. More than one-third of Sacramento home sales in October were priced below $160,000. Three-fourths of county sales were of foreclosed homes repossessed by banks, the Sacramento Association of Realtors reported Friday.”

The Manteca Bulletin. “Closing schools to weather the deepening budget crisis is among 100 ideas being scrutinized by Manteca Unified. The double whammy of declining enrollment due to the foreclosure crisis coupled with the state’s mid-year deficit projection that has ballooned to $28 billion has opened the door to such a move.”

“Serious talk about closing schools is ironic considering Manteca Unified leaders are dedicating the $89 million Lathrop High campus today at 4 p.m.”

The Westside Connect. “With its enrollment continuing to dwindle and the uncertainty of how hard the state budget crisis will hit public education, the Gustine Unified School District has implemented a hiring and spending freeze. Superintendent Gail McWilliams said the district received a double dose of worrisome news recently.”

“The October count by which enrollment is measured for the state showed a decline of 140 students from last October, McWilliams said, a steeper drop than anticipated. ‘We had thought that the decline would be right around 100 students, but our enrollment dropped more than that,’ McWilliams said.”

“She attributes the exodus of students to the collapse of the housing market and tough economic times. ‘Our hope would be that as gas prices and housing prices fall that people start coming in, but we don’t have any indication of that happening at this time,’ the superintendent commented.”

The Voice of San Diego. “The town of Julian, an hour east of San Diego, is a destination for harried city-dwellers who escape on weekends. Named a couple of years ago by Sunset Magazine as one of 10 places in the western states to buy a cabin, the mountain town attracts second home buyers.”

“But three years after the San Diego County housing market reached its price peak, the number of second-home buyers — and buyers in general — has ceased to be buoyed by housing frenzy. Julian’s market closely tracks the county’s housing macro-trends of falling prices, increased foreclosures and weak sales compared to the boom.”

“Twenty-seven homes sold in the first nine months of 2008 in Julian’s 92036 ZIP code. That was half as many as sold in the same period in 2007. The decline in sales is even starker compared to the same nine months in 2005, when 78 homes sold, and 2004, with 89 sales, according to MDA DataQuick.”

“There are about 75 homes and lots on the market in Julian, of about 1,650 total homes in the 92036 ZIP code. Fifteen of those listings are bank-owned. Another 11 are in an earlier stage of foreclosure, according to public records. Many others are short sales. And the rest, if they want to sell, must price their homes close to the distressed property prices to compete.”

“That means homes that were selling in the high $300,000s now sell for about $250,000, said Dennis Frieden, the broker and owner of Julian Realty. One house that was originally listed for about $1 million a couple of years ago has now dropped in price to about $600,000.”

“On a few of the lots where homes burned in 2003, buyers tried their hand at building homes in order to sell them. But by the time they obtained the permits, and built and finished the houses, the market had peaked and fallen. Now there are four or five listed for less than the owners owe on their construction loans.”

“On a drive through Julian’s winding roads with a visitor, Frieden stops to point through the trees at a 3,000 square foot house that fits that description. Its builders bought the lot and built a house that they hoped and expected to sell for $1 million. Now Frieden estimates they could get $550,000.”

“He points out another, a large brown farm-style house that was foreclosed on in this downturn. Its previous owners had mortgages up $600,000 and contacted Frieden to sell it for $700,000. It ultimately went to foreclosure, and the buyer who lives there now paid $489,000.”

“Frieden’s own journey to Julian matches some common reasons for moving there. He ran a real estate agency and employed 65 agents in Mission Hills for a couple of decades before selling his office and moving east.”

“‘Everything was getting redundant,’ Frieden said of his former metropolitan life. ‘I sold the same houses three or four times.’”

The Union Tribune. “Greed and naivete collided on Little Lake Street in the fall of 2004. It produced easy money for speculators and mortgage brokers and short-lived happiness for families who bought houses they couldn’t afford to keep. Few streets in the county have witnessed as dramatic a turnaround as Little Lake.”

“Prices on one block peaked in 2005, a few months after homes hit the market. Since then, 13 of the 23 houses – 57 percent – have fallen into fore-closure. Subprime loans were rampant in the census tract surrounding Little Lake Street. Of the 3,600 loans sold in that tract in the past three years, more than 1,000 were subprime.”

“But the problem wasn’t confined to subprime mortgages. Many home buyers gorged on easy credit. About 12 percent of foreclosed properties likely belonged to investors who walked away from at least two houses in the past three years, the Union-Tribune found.”

“During the overheated market, thousands swarmed the South Bay and took out risky mortgages. ‘All people did it,’ said JesÚs Muñoz, a construction worker who lost his Little Lake Street house in March. ‘They were investing and selling. If other people can do it, why not me?’”

“Many buyers on Little Lake Street, including Terry Louise Washington, said they were bombarded with messages from family, friends and co-workers to invest in property before theprices climbed out of reach. Washington, a community college instructor, heard that message repeatedly at church and even by a speaker at her high school reunion.”

“‘I thought I did the right thing’ in buying the house as an investment, said Washington, who used an inheritance from her grandmother for her $118,000 down payment. ‘People told me it’s the way to make it in life.’”

Philip and Perlita Bautista bought eight houses in the past five years, mostly in southeast San Diego, Otay Mesa and Chula Vista, according to county deeds. Because some had adjustable and negative-amortizing mortgages, it didn’t take long for the couple to fall behind in their payments. ‘The payment is increasing and the bank is squeezing,’ said Philip Bautista, who works as an electrician. ‘It’s pretty horrible. Ten years we worked. All the money we saved, it’s gone.’”

“In addition to his Little Lake house, which was rented out, Bautista said he has lost ‘two or three’ others. He walked away from the Little Lake house when his mortgage payments adjusted upward, and his loans surpassed what the house was worth. In his eyes, he already had paid the bank considerable money — $28,000 down and two years of mortgage payments.”

“‘That’s a lot of money. The bank already has that money,’ Bautista said. ‘Now that the house is only worth $300,000, are you still going to pay?’”

“County records show Bautista refinanced his original mortgage and recovered his down payment 17 months after his purchase.”

“Longtime community members say the South Bay’s housing bust has been a deflating experience, prompting many to work multiple jobs and placing strains on marriages. ‘People are just trying to hang on,’ said Aguirre, the National City community development specialist. ‘It used to be Hummer City. Now it’s Toyota Tercel Town.’”

“Maria Alvarez made decisions to minimize her losses. Alvarez bought her house on Little Lake Street as an investment property with a 20 percent down payment. Six months after buying the house, Alvarez refinanced and took out a $95,000 line-of-credit, according to county records. ‘We put $100,000 down. We didn’t want to lose that,’ said Alvarez, who defaulted on another house in May. ‘A lot of people are losing their down payments. Now they don’t have anything. My husband and I put it into our business. We survived with that money.’”

“Like Alvarez, several people who pulled equity out of their Little Lake properties say they spent it on business expenses or mortgage payments. Only when prodded, and in one case reminded, did they acknowledge using the money to buy a timeshare, new cars and jewelry. The most common response to the question of how the money was spent was: ‘To pay bills.’ Many could not remember what those bills were for.”

“Bankruptcy specialists say…lenders set themselves up for problems by not requiring buyers to prove they could afford the loans, or to provide traditional down payments. That stripped buyers of a tangible incentive to stay in their homes. The stigma of foreclosure and damaged credit are real, but temporary.”

“‘Twenty years ago, individuals were doing everything in their power to save their houses,’ said Radmila Fulton, a bankruptcy attorney. ‘Now they’re more willing to walk away. Why pay now when they can rent for less than their mortgage payment?’”

A report from the Washington Post. “In the casino of the housing market, Tom Walters is holding the wrong cards. He’s a mortgage broker, so business has been slow, and on his own house, payments have risen to about $6,200 — too much to handle. Instead of gambling on a sale, Walters and his wife decided to let others take a chance. So for just $50, people can buy a raffle ticket for his six-bedroom, 4 1/2 -bath, 6,000-square-foot home on a two-acre parcel just outside of Annapolis. Estimated value? One million clams.”

“This is the 10th house raffle attempted this year, according to the Maryland secretary of state’s office. But only one, in Hagerstown, has been successful so far. In the Walterses’ raffle, the winner (to be picked Dec. 31) gets the home, free and clear. No closing costs. No mortgage payments. No broker fees. The Walterses get to walk away.”

“‘It’s kind of bittersweet,’ Walters said. ‘We’ve put so much into this that it’ll be tough moving, but at the same time you have to do what’s right for the family.’”

“The Walters had big plans for the house when they bought it for $425,000 in 2006. It was in foreclosure. Tom Walters had grown up nearby, and he and his wife fell for the log cabin originally built in 1840. Sure, it needed a bit of work. No problem, they thought. By the time they were done, they’d sunk about $750,000 into renovations. That includes the $450,000 construction loan they took out.”

“The Walterses found they couldn’t pull any of the equity out and their payments had grown. ‘That’s when it became necessary to sell,’ Walterses said. ‘Rather than stick it on market and take our chances, we wanted to be proactive.’”

The Wall Street Journal. “Despite all the gloom, some people believe it isn’t too early to pick up bargains. One key, they say, is a deep understanding of the local demand for rental housing.”

“Dinesh and Rima Kumar, who live in Ashburn, Va., last month bought a town house in Sterling, Va., a suburb of Washington, D.C., for $154,000. The same home sold in June 2005 for $375,000 to a buyer who used subprime loans to finance 100% of the price. It went into foreclosure late last year. Mr. Kumar says he has found a renter at $1,500 a month. The Kumars, who paid cash for the home, calculate their monthly expenses — including taxes, insurance, maintenance and fees — at $491 a month.”

“The couple made the plunge partly because Ms. Kumar, a real-estate agent, noticed that homes in the area priced at $250,000 or less were attracting multiple offers. Home sales in the northern Virginia suburbs of Washington totaled 3,360 in September, up 92% from a year earlier, according to the Northern Virginia Association of Realtors. The average price: about $333,000, down 32% from a year earlier.”

“‘This could be the bottom,’ Mr. Kumar says, and even if it isn’t, ‘the down side on a $150,000 property is pretty low.’”

“Moreover, he has been burned in the past by stock-market investments and thinks rental income will far exceed the meager interest rates offered on bank deposits.”

The New York Times. “An exiting army of Republican foot soldiers is faced with the prospect of selling its Washington-area homes in the worst housing bust since the Great Depression. Many Republican-appointed officials in Washington are nested in northern Virginia. And for those who arrived near the height of the housing bubble, particularly those who came after George W. Bush was re-elected in 2004, what a time to buy in northern Virginia it was.’

“Like Miami and Las Vegas, northern Virginia was frantically built up during the housing bubble. Prices of single-family homes and condos skyrocketed. When I first lived in the area a couple of years ago, I remember hearing the curious term ‘Fairfaxed.’ It referred to Fairfax County, Va., an overbuilt Washington suburb. Builders continued to plant residential high-rises around the county and beyond in anticipation that housing prices would climb ever higher.”

“Fast-forward to today. Also like Miami and Las Vegas, northern Virginia’s housing market has cratered. The average housing price in the greater northern Virginia area in September declined 32.11 percent from the previous year, according to the Northern Virginia Association of Realtors.”

The Virginian Pilot. “The number of foreclosure-related notices in Hampton Roads was 1,155 in October, up 25 percent from September and 191 percent from year-ago levels, according to RealtyTrac. The spikes were most dramatic in Hampton, Portsmouth and Suffolk, all of which had an increase in foreclosure activity of more than 400 percent.”

“‘I think we’re just looking at the tip of the iceberg,’ said James Koch, an economist and president emeritus at Old Dominion University. ‘If housing prices continue to deteriorate, and I expect they will, we’re likely to see the foreclosure rate go up substantially.’”

“He predicts that homeowners in increasing numbers will walk away from homes for which they owe more than the property’s value. The new foreclosure data are being released two days after the federal government announced a plan to help more homeowners avoid foreclosure. But the program may be a little too late, said Kevin Harris, a housing counselor and lending consultant for Community Housing Partners in Virginia Beach.”

“‘A lot of people are upside down. It’s pretty bad,’ Harris said. ‘We get a lot of people calling due to loss of income, possibly having been laid off from a job. I definitely think it’s a reflection of the economy.’”

“Things got harder and harder in the past year for small-business owner Beverly Turner. Fewer customers came in each month. Revenue kept falling. She fell behind on her rent. She decided to close the corporate office of Weight Loss Forever, as well as two of the seven stores throughout Virginia Beach and Chesapeake. She thought that would be enough to keep her business afloat.”

“Then two weeks ago she got a letter from her creditor informing her that, as of Nov. 30, it no longer would finance her customers’ weight-loss plans, she said.”

“Tidewater Sports & Collecti bles shut down its locations in Chesapeake and Newport News in August and September, respectively. Its store at Norfolk’s MacArthur Center is scheduled to close today , said Raelee Everett, the chief operating officer. She and her husband started the business in 1999, selling sports and novelty beanies at a flea market in Virginia Beach. Business had been pretty good until the economy turned, she said.”

“The company filed for Chapter 11 bankruptcy reorganization last month. The store’s sales totaled $1.6 million in 2007, according to the tax return included with its bankruptcy filing. But the business still lost $19,673 last year. ‘We grew too fast, took on too much debt and didn’t pay attention to the trends in the economy,’ Everett said. ‘Part of it was poor business management, part of it was the poor economy.”

“The hardest part is letting down her employees, which totaled 27 in July, she said. By the end of December, she plans to close the last store in Virginia Beach. ‘It’s a very bitter end,’ Everett said.”

The Times Dispatch from Virginia. “The U.S. economy is not likely to recover until the housing market stabilizes, according to experts from the Federal Reserve Bank of Richmond. The supply of houses for sale across the nation is too high. Prices nationwide and in Virginia are falling. And the quality of mortgages — even those for people considered good credit risks — has declined.”

“Housing prices in Virginia began to fall in March and depreciation accelerated through June, the latest figures available, said Michael L. Riddle, a senior financial analyst at the Federal Reserve Bank of Richmond. ‘Negative housing prices have been driven by Northern Virginia, areas along the coast and Richmond to a lesser extent,’ Riddle said.”

“‘”It all boils down to a deterioration in underwriting,’ said Riddle…referring to loose credit standards for funding mortgage loans that led to the housing bubble.”

“Troubling new trends are emerging that show the number of borrowers with prime mortgages — traditionally considered among the most stable loans — is rising in Virginia and the nation. ‘We’re starting to see a notable deterioration in bedrock prime-rate loans,’ Riddle said.”

The Free Lance Star from Virginia. “There were 1,067 homes sold in the Fredericksburg area during the third quarter, a 15.7 percent jump from the year-ago period. Median sales prices dropped 19.5 percent; they were $230,000 in September for the Fredericksburg area–which comprises the city and Spotsylvania, Stafford, King George and Caroline counties.”

“The trend of rising sales and falling prices has been most extreme in Prince William County, which has been hit hard by home foreclosures. Third-quarter sales there rose 144.6 percent from the same period in 2007, while median sales prices dropped 42.4 percent.”

“Realtors on the call yesterday said the trend should continue in the fourth quarter and predicted that a leveling off of foreclosures and continued declines in new-home construction should stabilize the market. Christine Todd, CEO of the Northern Virginia Association of Realtors, called 2008 ‘the year of the cleanup,’ as investors and bargain-seekers sweep foreclosures off the market.”

The News & Advance from Virginia. “You wouldn’t expect a $1 million home on Easy Street on Smith Mountain Lake to end up in the same situation as a $20,000 house from inner-city Lynchburg. One was built as a lakeside mini-mansion in 2006. It has 5,200 square feet, granite countertops, cathedral ceilings and geothermal heat. The other was built in 1892 with a wood frame and siding. Its 1,500 square feet are warmed with electric baseboard heaters.”

“Both met the same fate this year. Foreclosure. So did more than 200 other homes in the Lynchburg area. An examination by The News & Advance of land records in Lynchburg and the counties of Amherst, Appomattox, Bedford and Campbell show that more people have lost their homes this year than last year, up 33 percent overall.”

“Many of the mortgages that went to foreclosure this year in the Lynchburg area bore the signs of subprime borrowing. The average interest rate, when listed in land records, was 7.9 percent. Nearly 10 percent of the foreclosed properties had interest rates that started at 10 percent or higher. At least 68 of the properties had mortgages financed with adjustable-rate loans. The top lenders whose local loans ended in foreclosure were big players in the subprime industry: Decision One Mortgage Company, New Century Mortgage and Option One Mortgage Company.”

“Subprime lending was mortgage companies’ bread and butter for a while. But it became their downfall, said Billy Woolridge, a local mortgage originator who worked for American Home for six months before the company went bankrupt last year.”

“‘It wasn’t because of any wrongdoing. We weren’t doing anything that dozens of other companies were not doing,’ he said.”

“Clark Jefferson, (a) counselor for Lynchburg Community Action Group (said) their clients had missed mortgage payments for a variety of reasons. Jefferson said some had lost jobs. Some had taken on extra debt for cars or furniture.”

“Melissa Yuille, senior housing counselor for the nonprofit agency, said she has seen some clients’ payments go from $800 to $1,200 a month after the interest rate changed. ‘And who has an extra $400 lying around?’ Jefferson said.”

“‘I’ve had a surprising amount in the upper-price ranges around (Smith Mountain) lake and the Forest area, some of the nicer homes,’ said Bonnie Hall, a Roanoke-based real estate agent who deals only with foreclosures.”

“One of those was the home on Easy Street in Moneta. With a backyard facing Smith Mountain Lake, the home was appraised by the county at $1.2 million. Cameron Jordan, the real estate agent who now owns that house, said the former owner was the contractor who built the home, then refinanced it in 2006.”

“After the owners defaulted, a foreclosure auction was held in April. M&T Bank took the house. The home went on the market on July 4. Jordan immediately made an offer, and bought the house for $765,000.”

“‘I bought it with the hope that I can get my own house sold and move into it,’ Jordan said. That has not happened yet. His second child was born this summer, and Jordan and his wife Angie were looking for a home with more bedrooms. The idea of living in a house that someone else lost doesn’t bother Jordan. He said that the default and foreclosure happened months before he got involved.”

“Also, getting a foreclosure off the market could help other homes to sell by decreasing competition, he said. For now, though, he thinks his children will enjoy growing up in this home. ‘I know that, number one, it’s a real good deal and it’s a really nice house,’ Jordan said. ‘I’m looking forward to living there. It’s nice enough that we’d be happy living in it forever.’”

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