The Housing Bubble

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It’s Friday desk clearing time for this blogger. “Some Des Moines-area homeowners feel stuck in their homes — they can’t sell and they can’t rent out either. Doug and Marissa Kennedy of Ankeny want to buy a home larger than their 1,100-square-foot townhouse. They tried to sell but couldn’t find a buyer, and new restrictions prevent them from carrying two mortgages to get into the landlord business. ‘We don’t even have a Plan B anymore,’ Doug Kennedy said.”

“C.P. Morgan Homes announced Thursday it will halt all operations today, after 26 years in the business. Some families are concerned that promises made by the company won’t be kept. Patricia Conry said she and her family moved to a C.P. Morgan community in Camby two years ago from California. She said a huge part of their decision to settle in Northfield at Heartland Crossing involved promises of a pool and a park, which were never built.”

“Without the promised amenities, the house isn’t nearly the value they thought it was, she said. ‘We paid all this money for a house, and now we’re not going to get the things (that were promised),’ Conry said.”

“The Lafayette housing market is bucking the national trend of slumping home sales and depreciation in value. ‘Someone who buys a house here, they think they are going to get that gradual appreciation over a period of time,’ said Broker Duke Long.”

“As for Andrew Conner, he has his eye on a home south of town. He said he is closer than ever to fulfilling his dream of home ownership. ‘I just wanted something that was my own. I’ve been paying rent for four years and it hasn’t been going to anything and I can actually call this my own,’ Conner said.”

“In January, Marco Island saw the biggest drop in the median price for single-family resales in the state. The median price fell to $200,000 for homes sold in January, according to the Florida Association of Realtors. That was down 62 percent from a year ago, when the median price was $529,500.”

“Fort Myers-Cape Coral came in second in the state for its single-family home price drop in January. The median price fell to $94,900, down from $234,000 a year ago — a 59 percent decline. ‘Approximately 80 percent of the Lee County market in 2008 was a distressed sale,’ said Brett Ellis, partner with The Ellis Team at RE/MAX Realty Group in Fort Myers. ‘They are good deals. They are well below replacement cost.’”

“In January home buyers in the Albuquerque metro area could choose from among 5,309 homes and 616 townhomes on the market. That translated into nine homes for every buyer out there looking. ‘Most every buyer, unless they realize this house they absolutely have to have, then they’re going to come in and lowball the house,’ said George Lowes, president of the Realtors Association of New Mexico. And right now price is the driving factor, he said.”

“Northwest Austin homeowners may want to wait before putting their homes up for sale — if economic forecasts are correct, a housing shortage could drive prices up in the next few years. ‘My fear is that national developers may have overreacted, and Austin may be penalized in the form of lower home starts, which eventually can create an artificial shortage,’ said Angelos Angelou, principal executive officer for AngelouEconomics.”

“Realtors and economists agree that now is still not the time to sell, and it probably will not be for another 18 months. ‘You haven’t lost any equity if you haven’t sold your house,’ said Mark Sprague, Austin partner for Residential Strategies. ‘It’s like a stock. You have to wait for that equity to come back.’”

“Helen Edwards, president and chief operating officer for Coldwell Banker United, Realtors-Austin region, said home buyers are looking for higher-quality homes, but not necessarily larger homes. ‘We’re past the point of bigger is better. Buyers are more concerned with quality of construction and energy efficiency,’ Edwards said. ‘People are not looking for McMansions anymore.’”

“While nuts-and-bolts details are unclear about how President Barack Obama’s unprecedented $275 billion foreclosure rescue plan will work, the immediate benefit of the proposal may be a sense that a bottom to the housing crisis has been reached. ‘We need to stop the free fall and right the ship,’ said Patricia Harpin, a veteran broker in Stratham. ‘In the last year, homebuyers I’ve talked to have been paralyzed out there. I think the biggest thing we need to do is to install confidence,’ said Harpin, who works in southern Maine and New Hampshire. ‘Even if it’s something you’re not facing today, you hear about it. We need to continue to reinforce the positive because it’s a great time to buy a home.’”

“What’s not known yet is what lenders will take part, what homeowners need to do or even how the process will work. Obama announced his plan Wednesday in Arizona, a state drowning in record foreclosures.”

“Most struggling Arizona borrowers are too far upside-down on loans to qualify for refinancing at a reduced loan amount under the program, local real-estate professionals said after learning about provisions discussed by Housing Secretary Shaun Donovan before Congress on Thursday.”

“‘In Arizona, Florida, California and Nevada, most borrowers are underwater by more than 50 percent,’ said Mateo Garcia, president of Mateo Mortgage Funding in Tempe. ‘I just think Washington is seriously naive to what is going on in the streets on a daily basis.’”

“Bob Wasieko, of Phoenix-based Security Mortgage Corp., said that the $75 billion allocated toward preventing foreclosures is ‘a drop in the bucket’ given the total value of distressed home loans in the United States. Letha Martin’s concern is that the promise of federal assistance will discourage homeowners in Arizona from taking the steps necessary to improve their financial situation on their own. ‘Too many people are placing too much stock in the degree of impact the stimulus plan is, in fact, going to have,’ said Martin, vice president of Valley loan modification firm the Platinum Group. ‘This pie-in-the-sky attitude may lull people into a false sense of security.’”

“‘A house that was worth $300,000 may now only be worth $150,000 to $180,000 or less,’ said Bob Bemis, CEO of the Arizona Regional MLS. ‘Even if the bank modifies the loan, extending the term to 40 years and dropping the interest rate to under 5 percent, the homeowner will still never be able to sell the house for what is needed to repay the total debt.’”

“No one has a bigger stake in the Obama administration’s housing rescue plan than Las Vegas. Dennis Smith, president of Home Builders Research, said he doesn’t think there is a magic wand to solve the foreclosure crisis because it is so broad and deep.”

“‘I think any kind of action that we can get out of the government to assist in the foreclosure problem is a positive and it is appears like they are trying to take as much as they can and throw it against it the wall and see what sticks,’ Smith said. ‘And that is not bad … But when you have 50 percent of homes in Las Vegas underwater, that is a scary thought. To suggest that a person is not going to walk away from that loan because he can go in and refinance and save 150 to 200 bucks a month — I don’t see that happening. He is going to walk away like everybody up and down the street did.’”

“California is offering a big carrot to people who buy brand-new homes in coming weeks: a $10,000 state tax credit for new-home buyers who close escrow starting Sunday. Jed Kolko, a research fellow at the Public Policy Institute of California in San Francisco, said the tax credit is a mixed blessing.”

“‘It’s designed to boost the construction industry, which it’s likely to do,’ he said. ‘But it ultimately encourages more new-home constructions, which is most likely to happen where there is more available land and less regulation - the areas where we have oversupply already.’ Moreover, the credit could sap demand for existing homes, making it even harder for people who need to sell their homes to do so, he said.”

“‘While the tax credit may marginally help slow the decline in housing prices, it could encourage people who otherwise would not be able to afford a home to buy one,’ he said. ‘As we all know, sometimes that works out and sometimes it doesn’t.’”

“South Bay home prices plunged in January to a level not seen for nearly five years. The median price of an area home was $477,500 last month, according to the California Association of Realtors. The local decline was less severe than the countywide figure, a stunning 35.5 percent drop to $300,000.”

“‘You know something is going on when you start getting two, three, four times the listings than sales,’ said Realtor Adolph James, who specializes in the beach cities. ‘For the last five, six, eight years, the average number of listings available in that area was eight to 12. As we speak, I think we’re pushing 40. Yeah, it’s tough.’”

“Another sign of the housing market’s tough times was evident on the Palos Verdes Peninsula, which was not cited individually in the CAR report because the entire area failed to generate at least 30 home sales in January. It was the first time The Hill was left off the CAR list since February 2006.”

“James said he expects to see a bottom to the housing market within the next two years. ‘It wouldn’t be a surprise if it’s mid to late next year, but it’s not going to be ‘09,’ James said. ‘The bottom line is that real estate moves 3 percent a year, and we had years where it moved up 13, 14, 15 percent. And we’re giving it back now.’”

“The epicenter of this earthquake was in California. But the true epicenter can be located with greater precision at the headquarters of World Savings, the nation’s second-largest savings and loan, founded and led by Herb and Marion Sandler. The type of mortgage sold by the bucketful were known as Option ARMs.”

“A whistleblower, Paul Bishop…had warned the top management at World Savings that loans were being aggressively promoted and made to people with little or no regard for their ability to afford them. The term ‘Enron’ was waved about like a red flag but to no avail.”

“Will levers be pulled to help the Sandlers avoid further scrutiny? Will Attorney General Eric Holder, not immune in the past to allowing political factors influence his decision-making, send a message to the U.S. attorney in San Francisco to focus on other issues than the Sanders? One more question: Why has House Speaker Nancy Pelosi not looked in her own backyard for the people partly responsible for our nation’s problems?”

“On Jan. 29, President Obama called the bonuses paid to Wall Street employees ’shameful.’ The current financial debacle is a result of the housing mortgage collapse. The mortgage collapse is the result of ’shameful’ government policies which promoted loans to unqualified buyers.”

“Most ’shameful’ of all is the ’shamelessness’ of politicians who keep feeding taxpayers their garbage while maintaining a sincere demeanor.”

“Alan Greenspan should emulate Donald Rumsfeld. When you err badly as a policy maker and do enormous harm to the nation, hunker down and keep your mouth shut rather than demean yourself with lame excuses. That is what Greenspan does in the CNBC documentary ‘House of Cards’ that aired recently.”

“The Federal Reserve under Alan Greenspan failed badly in the last half of his nearly two-decade tenure. It failed in the most basic function of any central bank - regulating the money supply so as to maintain a stable price level. And it failed as a financial market regulator. These two failures - to prudently manage the money supply and to regulate the banking sector - are key causes of the global financial crisis and growing recession.”

“That is not to say the Fed is the only culprit. Many other factors played a part, including large persistent federal budget deficits financed by borrowing abroad, decades of ill-reasoned policies to foster homeownership, a somnolent Securities and Exchange Commission, a fragmented financial regulatory system, irresponsible management of financial institutions and a society that turned a blind eye to folly because times seemed good.”

“In CNBC’s documentary, Greenspan once again argues that the Fed had little to do with the bubble or the current recession. These, he implies, are random events of the kind that occur for no reason every century or so. Moreover, he argues, there is nothing the Fed could have done to limit the growth of the bubble, save raise interest rates so violently that the economy would fall into a recession with unemployment of 10 percent.”

“This is malarkey. Yes, by 2006, there was no longer an easy way to climb down from a perilous perch. But with the money-supply growth at twice the rate of output year after year and with the Fed’s interest-rate target holding at one-fourth or less of its long-term averages, quarter after quarter, it insults the public’s intelligence to argue the Fed and its chairman bear no fault.”

“No Fed official was as conscious of his public image as Greenspan, once basking in the fawning title of ‘maestro.’ If he persists in making statements like his recent ones, the image that he’ll be left with will be far less flattering.”

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