The Housing Bubble

It’s Friday desk clearing time for this blogger. “The price of a detached house in this upscale community fell 22 percent in October from a year earlier, helping to drag the average residential price in Canada down by 9.9 percent, the biggest decline in 26 years. West Vancouver builder Sean Hanley thought Canada’s real estate market would be immune to the housing recession. Hanley has cut his asking price to C$3.99 million ($3.26 million) and is now offering a C$100,000 bonus, on top of regular fees, to the agent who delivers a buyer. He’s starting to think it may be easier to rent the place. ‘The only other option is to reduce my asking price by C$600,000 to C$700,000 to where I’d be virtually giving the place away,’ Hanley said. ‘I’m not about to do that.”’

“Hard-working Tennesseans were lied to and tricked into signing home loans they couldn’t afford. James Slate of Greenbrier is just one homeowner who said mortgage companies ripped him off. ‘I had been taken advantage of. I know it. There’s no doubt about it,’ Slate said.”

“Jimmy and Joyce Slate of Greenbrier said they’ll never pay off their home loan. They claim their mortgage company added a $25,000 penalty to their loan then demanded payment. Slate recalled one conversation with the lender. ‘He said, ‘Well it’s got to be paid. And I said, ‘Well, what if I can’t pay it?’ He said, ‘We’ll take your damn house,’ Slate said.”

“‘Lo and behold I found they stole my house. They lied to me there’s now other way to say it. They just lied,’ said Alyce Simmons of Nashville. As housing prices soared, she decided to refinance to get money for repairs. But she was stunned to discover her monthly mortgage payment was $500 higher than she was promised.”

“Why didn’t Simmons see the actual monthly payment when she closed the loan? She said the notary who came to her house to get her to sign the papers had her sign blank pages and didn’t give her a copy of what she signed. Simmons demonstrated how the notary quickly rushed her through the stack of papers. ‘He would come through and say, ‘Sign here, initial here, sign here,’Simmons said. ‘They were going to take my house. We were going to be homeless.’”

“A review of Jing Hua Wu’s investments by the Mercury News — he owns 17 properties in three states — indicates that in the months before the killings, the housing bubble burst and many of Wu’s once-promising real estate investments tanked. While he looked prosperous on paper, with properties in California, Arkansas and Washington, several are worth less than he paid for them. And records also indicate that he also is tapping heavily into the equity in his Mountain View home.”

“Wu owes more than the current value of two houses he bought before the crash in an affluent gated retirement community in Hot Springs, Ark., according to Realtor Keitha Turner. Both houses in Hot Springs Village are now worth less than when he bought them in 2000 and 2005. ‘If you could even find a buyer, with so many houses in the Village for sale,’ Turner said, ‘his would probably go for $10,000 to $20,000 less than he paid.”’

“Wu invested in two houses in comfortable suburban neighborhoods of Vancouver, Wash. in 2005 and 2007 — near the top of the then-booming market, said Vancouver Realtor Lisa Costa. At the time, property in the city was appreciating rapidly, with equity in some locations ranging from 10 to 25 percent. But when the bubble burst, Wu was caught holding the properties. ”

“‘I’m sure when he bought it, he thought he was going to make money,’ Costa said, ‘but the market shifted virtually overnight.’”

“Government officials and housing organizations in Georgia will have $153 million to spend under the Neighborhood Stabilization Program. Even supporters concede the money will have little impact against a vast metro Atlanta real estate market in decline. DeKalb County CEO Vernon Jones, whose county gets the largest allotment, readily admits it could go horribly wrong. ‘The restrictions that come along with it … you can tell it wasn’t well thought out,’ Jones said. ‘It’s not going to have the impact it should. It came from a bunch of bureaucrats trying to score political points.’”

“When Jones heard the federal government would make cash available to fight the foreclosure crisis, he said he rushed to Washington to attend a briefing. He left disappointed when he saw there was a huge disconnect between the program’s intent and how he thought it would work on the street. ‘They just left the stakeholders out of the room,’ he said. ‘They didn’t talk to anybody. They were just flying by the seat of their pants.’”

“Atlanta Councilman Howard Shook said what little he’s learned makes him wonder whether it won’t be a spectacular failure. ‘For a government that struggles to provide meat-and-potato services,’ Shook said, ‘I’ve got a hard time seeing this as anything other than a disaster for the ages.’”

“A new wave of foreclosures may be on the horizon as unfavorable adjustable rate mortgages taken out in 2005 and 2006 start hitting home, according to those who work with people who have become overextended financially. ‘It is getting worse,’ said Celeste Collins, executive director of OnTrack Financial Education and Counseling in Asheville, which works with residents in 18 mountain counties. ‘With our mortgage default counseling, if you compare all of 2007 with where we are right now — January through October — we have seen 53 percent more people than in all of 2007.’”

“Chants of ‘Wake up, Secretary Paulson’ filled Pennsylvania Avenue Tuesday morning as a crowd of 200 — including three New Bedford residents — prayed outside the Department of the Treasury. Daniel Lesser, organizer for United Interfaith Action, said foreclosures are ‘racking New Bedford.’”

“‘We see the abandoned houses everywhere,’ he said.”

“Eight townhouses built in part with a city of Medford grant meant to promote home ownership among low-income residents will be turned into rentals after the nonprofit organization that built the houses at 11th and Grape streets was unable to find qualified buyers. Construction began in late 2006 and didn’t finish until spring 2008, said John Wheeler, Rogue Valley Community Development Corporation’ co-director.”

“President Floyd Bawlowski said RVCDC screened more than 100 applicants. The handful that qualified ended up balking on the purchase after finding more attractive accommodations when the housing market began to slip, or in some cases, they made vehicle purchases that disqualified them for the credit, Wheeler said.”

“‘We were marketing before construction in hopes of having buyers lined up before the houses were built,’ Wheeler recounted. ‘We got the loan together. We couldn’t find homeowners before construction, but the director at the time was confident they would come along, so the project began. Then, the market took a nosedive, and those buyers never materialized even though we continued to recruit home buyers.’”

“When Focus Property Group gathered eight homebuilders and purchased 1,710 acres of government land at the base of Kyle Canyon in 2005, it promised to extend Las Vegas still farther into the desert. This project, approved by Las Vegas for as many as 16,000 homes, was called Kyle Canyon Gateway. But that was then. Without a single home being built, the property has been foreclosed on by its lender, Wachovia Bank, said John Ritter, CEO of Focus Property Group.”

“‘Ritter said he has no problems speaking candidly about the marketplace, unlike those who find positive spins. ‘To a certain extent, that is how we got into this mess,’ Ritter said. ‘We all just encouraged each other to go farther out on a limb and take more leverage. I think there is a light at the end of the tunnel, and I am hoping it is not a locomotive coming. But ultimately in Vegas the good news is there is very limited supply, and when things turn round here, values are going to increase relatively quickly. I think the market has the capacity to become very strong again.’”

“He warned: ‘When we come out of this thing, we need to be more conservative. We need to use less leverage if any leverage at all. It is going to be long time before banks jump back in the lending game for land and land developers, and even to a large extent the builders.’”

“Did you see Merrill Lynch Economist David Rosenberg’s comments yesterday that the country should consider putting a moratorium on new home building? Apparently he made the remarks half jokingly, arguing that we need to curtail supply to put a floor under the market and stop prices from falling. Maybe we should stop producing cars and computers, too. That would certainly help prevent prices of those items from declining.”

“Let’s face it–we live in a consumption economy and homes, new or existing, are a big part of that equation. What about the home building industry’s comtribution to the national economy? The other problem with this argument is that supply conditions vary throughout the country and even within metro areas. People may not want to live in the places where there’s an excess supply. Are we going to force people to move to Phoenix, Florida, the Inland Empire, and Las Vegas?”

“Colorado Attorney General John Suthers today said he has reached settlements with three mortgage companies as part of a crackdown on false advertising that he launched about two years ago. Each of the three companies ran ads advertising low teaser rates and/or low minimum monthly payments associated with option ARM loans.”

“The Attorney General has also reached a settlement with Sacramento, California-based mortgage broker Tri-Point Realty, which he said sent letters to Colorado homeowners that appeared to be from a homeowner’s bank. The letters urged the homeowner to refinance to take advantage of his home’s increased value. Tri-Point, however, had no affiliation with the lender and did not conduct any research to determine if the home had actually increased in value.”

“Department of Housing and Urban Development Secretary Steve Preston recently announced what he said was a ‘mammoth leap forward for the consumer.’ So what does this mammoth leap entail? It’s an overhaul of the good-faith estimate used during the mortgage lending process. ‘Consumers need and deserve to know what they’re getting themselves into before they sign on the dotted line,’ Preston said during a teleconference.”

“To this so-called big announcement, I say big whoop-de-do. So now we get ‘reform,’ after people have bought homes they couldn’t afford with exotic loans that should never have been sold to them. Now we have so-called major reform, when lending standards are so high and credit so tight it’s hard to close on a loan anyway.”

“For me, mammoth reform would include legislation that imposed new bone-chilling cash penalties and prison sentences for anyone who deceives consumers during the mortgage process. Mammoth would be creating a commando-type enforcement division at HUD. Mortgage professionals should be as afraid of HUD as many people are of the IRS. Mammoth would be creating a new worksheet as part of the application process that would look at all monthly expenses of a potential borrower. Preapproved applicants would have to list regular monthly living expenses to see if the loan would take up more than 38 percent of the family’s monthly net income.”

“The new standardized good-faith estimate is just a start to the overhaul needed in how loans are sold.”

“The Newton Grove 100 Committee held its annual banquet recently. The highlight of the night was a speech by Jeff Etheridge of BB&T bank. He has spent the last 37 years in the banking industry. He discussed several other types of loans made by banking institutions that increase in risk as you go. The one that brought the loan industry to its knees earlier this year is a ‘pick and pay’ loan where you pick a payment. This was started by a company called Golden West Corp. ‘Lets take that same $500,000 house with the same $5000 a month payment. But, you are only paying $1000 per month. That means you are going in the hole $4000 a month. At the end of a year your $500,000 obligation is $548,000, two years it is $596,000 and at the end of three years, it is $644,000 because you didn’t pay what it was worth.’”

“‘What was happening is that investment firms were buying these packages but nobody was looking at what they were buying. They would buy at 10 a.m., sell it at 10:05 a.m. with a small margin and buy some more. This wasn’t just nationally; it was global. It was going on all around the world. The problem is nobody was looking at where these loans were or where are the houses, what is the ability to pay? Everything hinged on how much return (margin) the seller wanted. The higher the margin, the higher the risk.’”

“All these were intended to make it easier to own a house. ‘Everybody knew that housing prices were going to go up, your salary would go up and you could make the payments. But, it was an absolute farce.’”

“A former Federal Reserve governor speaking to a group of certified public accountants Thursday was critical of the actions taken by former Fed Chairman Alan Greenspan. Wayne Angell, a Kansas native who served on the Federal Reserve Board from 1986 to 1994, said Greenspan played a role in creating the housing bubble through monetary policy. He said the Fed’s move to bring the Federal Funds Rate to 1 percent in 2003 and keep it there until mid-2004 precipitated the housing bubble because there was no house price deflation.”

“‘One of the first conversations I had with Alan Greenspan was the Hippocratic Oath and the mantra to do no harm,’ said Angell, who is also a former chief economist at Bear Stearns. ‘But harm he did.’”

The Philadelphia Inquirer reports from Pennsylvania. “This is supposed to be a buyer’s market. But tougher lending rules, job insecurity, and fears that the house purchased today might be worth less tomorrow are taking the flexibility out of the decision to buy. The result, in many cases, is a dance of delay, a standoff between prospective buyers and sellers. Shoppers look and look, but don’t close a deal. Sellers sit and wait, confident that someone will pay their price - eventually.”

“Derek Dobin of Wynnewood says he’s serious about buying. He’s searched for two years for a larger house that’s also in his price range for his growing family. ‘We have watched the homes that go up for sale in our neighborhood very closely,’ Dobin said. ‘We have put in bids on a few homes, only to walk away relieved when the deals were rejected.’”

“Why relieved? Because, he said, had any of those offers been accepted, it would have been a financial challenge. ‘We bid on a nice, almost-new home out in the Great Valley area, 15 percent below asking, which was stretching us toward our upper limits,’ said Dobin. A bank was involved with the owners, who had relocated.”

“The owners, he said, were insulted by the offer and ’said they would rather hold the home for two years than sell to us.’”

“Even the ‘three-bedroom starter home’ he now owns was a financial stretch, Dobin acknowledged. ‘We refinanced and took out a home-equity line of credit several years ago to help make ends meet when we had our first child,’ he said. ‘We never thought we’d still be in our current home, as we are expecting our third child.’”

“Chris Ryan, a real estate agent for 35 years, is a first-time seller. He’s downsizing and has had the Chestnut Hill house he’s owned for 28 years on the market for almost 30 days. But most buyers, Ryan said - including coveted first-timers who don’t have to sell a house to buy one - strike him as less than serious about the single he’s listed at $575,000.”

“‘I’ve either been getting the ones who have been looking for one or two years, or those who are getting married in a year and want to move in a year and a half from now,’ he said, adding that he’d rather take the house off the market than lower the price. ‘They’re just wasting our time,’ said Ryan. ‘They’re waiting for prices and interest rates to drop before they act.’”

“T.J. and Susan Gobreski jumped into the fray earlier this year - with both feet, though not intentionally. In March, when they test-marketed their Queen Village house for sale on Craigslist at $379,000, they did not intend to buy before they sold. Yet here they are with their three children, living in East Mount Airy since June after stumbling upon ‘what we always said we’d buy if we found one’ - a house with an outdoor fireplace, purchased for $417,500 with a seller assist.”

“The Gobreskis still have not sold the Queen Village house, which they’ve owned since 1996 and spent much money to make structurally sound. But they’ve had lots of lookers, on a street where there have been two $500,000-plus sales in the last month. ‘It is a great time to buy,’ said Susan Gobreski, who added that she and her husband are managing to balance the two mortgages. ‘There just aren’t a lot of buyers out there.’”

“Gobreski said the Queen Village house is worth what she is asking based on comparable recent sales. She believes the economy will recover, and isn’t going to lower the price. ‘The fundamentals are sound, and homes will retain their value,’ she said. ‘Why should I lower the price $10,000 when I can keep it and rent it and make that much and more in a year?’”

The Press of Atlantic City from New Jersey. “Home prices in Atlantic County continued to fall in the third quarter and are now down 8.9 percent over the past 12 months, the National Association of Realtors said. Home sales in New Jersey fell 12.2 percent from the year-ago period. Thirty-five percent to 40 percent of transactions in the third quarter were distressed sales.”

“Louis Viruet Sr. was among the buyers in the quarter, paying $85,000 for a fixer-upper in Vineland. He said Tuesday that he thinks prices need to fall further. ‘Right now, people still want too much. Even the banks, they don’t just want it to go. They want every penny.’”

“Bob Marquis wonders how much he’ll have to drop the price on his four-bedroom Linwood house to sell it, or even get people to look at it. He started at $429,000 seven months ago and already has reduced the price in steps to $365,000. Now, he said, he’s thinking of going down to $355,000.”

“Marquis said he can’t understand the lack of interest in the newly redone home with finished basement, two-car garage, new kitchen, hardwood floors and oversized lot. ‘I thought being in Linwood meant something,’ he said. ‘I’ve slashed it to nothing and I still can’t get a bite.’”

“Part of the problem, he said, is that new houses in nearby Egg Harbor Township have been priced down below $300,000. ‘The builders are hurting and they’re dropping their prices, and that’s not helping either,’ he said.”

“Casinos have set another record. Unfortunately, the type of records they have been racking up lately are going in the wrong direction. Atlantic City’s gaming industry posted a nearly 23 percent decline in gross operating profits in the pivotal third quarter. It was the biggest decline ever for the third quarter. ‘We don’t see the situation improving in drastic form in the upcoming year,’ said Harvey Perkins, a senior vice president with a Linwood-based casino consulting firm. ‘It’s not doom and gloom. It’s reality.’”

“‘I think it’s the same lack of confidence we are seeing in the retail business and the housing business. The gaming business is not immune to it,’ explained Mark Juliano, CEO of Trump Entertainment Resorts Inc.”

The Star Ledger from New Jersey. “First, the bad news. The New Jersey housing market still looks pretty grim, according to quarterly housing data released yesterday by the National Association of Realtors. And the worse news? As employers continue to aggressively cut jobs in the face of the nation’s economic crisis, there are jarring signs things may get even worse in a few months.”

“In New Jersey, home prices fell in every metropolitan area tracked by the Realtors group except the Trenton-Ewing market, where the median price rose 4.2 percent, to $342,500, thanks to the increase in expensive homes being built in that county.”

“Across Wall Street, the job losses have been particularly bleak. In early September, Moody’s Economy.com predicted 45,000 to 65,000 financial workers in the New York area would lose their jobs by the middle of 2010. ‘It causes potential homebuyers to lose confidence,’ said Jeffrey Otteau, president of Otteau Valuation Group.”

“Hudson County, which Otteau describes as ‘the sixth borough of New York City” is already feeling the pinch. ‘We have seen significant weakening in Hudson County over the past two months, directly related to all the trouble in financial markets,’ Otteau said.”

“Foreclosure filings on 8,473 properties across the state were filed in October, with Essex, Bergen and Salem counties driving the activity, according to RealtyTrac. James Hughes, dean of Rutgers University’s Bloustein School of Policy and Planning, said it’s too early to tell whether the federal government’s steps will have more of an effect on stemming the foreclosure problem.”

“‘I’ve not seen anything but broad, general proposals,’ Hughes said. ‘I’m not sure at this stage how effective the programs are going to be.’”

“‘The deteriorating housing system is really worrisome,’ Hughes said, adding that it was exactly such a force that helped create a 38-month-long recession in the 1980s.”

The Warren Reporter from New Jersey. “Township officials authorized Township Attorney Michael Lavery to work on extending a re-development agreement between the township and owners of Oxford Textile LLC, a 285-acre site located on Foundry Street slated for future development. The Guarriellos, owners of Oxford Textile…said they are seeking an extension on their agreement because of a lagging housing market and slow approvals with New Jersey Department of Environmental Protection.”

“‘The housing market has dried up,’ Nick Guarriello said later. ‘With the housing market dried up, nobody is knocking down our door.’”

The News Journal from Delaware. “The model home sits empty, the street leading to it barren and blocked off, the development’s for-sale banners tattered and fallen to the ground. Just a few minutes from Del. 1 and the beaches, on Cave Neck Road near Milton, sit 89 mostly empty acres once destined to be a bustling community.”

“The land is now the latest apparent casualty of the building bust, an economic slowdown that has rippled through southern Delaware’s economy, leaving more than 700 properties in foreclosure already this year.”

“Ohio-based AmTrust bank sought foreclosure on the developer’s $13.5 million debt and the property went up for auction Tuesday. Bidding started at $1 million, but there were no takers, as in many foreclosure cases. The property now automatically reverts to the bank. ‘It’s the largest one that I can recall,’ said Lynn Kleb, who handles foreclosures for the county sheriff’s office.”

“Vincent Overlook was approved by county officials in 2004. It was pitched as a 250-home community with tennis, swimming and recreation areas, a pedestrian/bike path and community parks. A grand opening was held in October 2007, but only a few homes and the clubhouse were built. Court records show a host of liens filed against Maryland-based Vincent Property LLC from fencing, flooring, drywall and electrical contractors.”

“The development isn’t the first housing project to falter in what was once a red-hot market. In February, developers halted the proposed 1,630-home Isaacs Glen community near Milton before breaking ground, meaning land will likely remain agricultural. More recently, several smaller developments in Sussex have gone to sheriff’s sale, Kleb said. ‘We’ve had a few, but nothing of this size,’ she said.”

“Single-family homes still make up the vast majority of foreclosure cases in Sussex County — ‘unfortunately,’ Kleb said.”

“Prominent resort-area developer Chris Schell, president of Schell Brothers, said he wasn’t familiar with the Vincent Overlook project, but expected more such foreclosures to happen. ‘I’m sure that’s going to be something that we see happening in this market more than once,’ he said.”

From WBAL TV in Maryland. “Members of the Greater Baltimore Board of Realtors met Thursday to discuss the outlook for the Baltimore area market. Real estate agent Vito Simone said while houses are selling, albeit slowly, the foreclosure rate is higher than they’d like to see. Rising variable mortgages coupled with layoffs and the struggling economy are making it hard for some homeowners to make their house payment each month.”

“Homeowner David Tracey said he’s getting less work as a landscaper. ‘My cash flow’s down, so it makes it more difficult,’ he said.”

The Frederick News-Post in Maryland. “Anirban Basu, CEO of the Sage Policy Group, told a full house at Frederick Community College that ‘it will get worse before it gets better.’”

“Basu blamed ‘the regulators and the regulated’ for the housing crisis. ‘Capitalism fell apart. (It) used to be that borrowers and lenders knew each other. Lenders were concerned about the payback and so were the borrowers.’”

“That broke down, he said. Documentation for loans was not required and banks lent money to people thinking that even if they failed to pay the loan, the lender would get the property. With massive foreclosures and a move to a buyer’s market, lenders are left holding the bag.”

“Basu interjected humor into his presentation, at times lessening the gloomy outlook he forecast. He said his annual talk to Maryland homebuilders usually only took a few minutes ‘because they were busy. This year, I talked for about 45 minutes to an hour. They really didn’t have anywhere else to be.’”

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