Contagions Of Excitement
The Seattle Post Intelligencer reports from Washington. “Yale Economist Robert Shiller…who characterized the tech and housing run-ups as bubbles before they popped…delivered the keynote address at Seattle Pacific University’s annual Downtown Business Breakfast. Markets really react to psychology, and that’s why we get bubbles, Shiller argued. ‘They are social epidemics. They are contagions of excitement.’ That happened with the real estate market in recent years, he said. ‘We got really excited about housing as an investment, and we wanted to buy two of them, or maybe three.’”
“Shiller supported moves to bail out large companies, saying: ‘The bailouts are there to prevent some big event that would really destroy confidence.’ More should be done, he said. ‘I think it’s troublesome the number of foreclosures that we’ve allowed already to happen.’”
“Prosecutors have filed solicitation to commit arson charges against a Woodinville contractor who was allegedly caught on tape offering to pay his tenant $10,000 to burn down a house in foreclosure. Michael Anthony Poole, prosecutors say, had asked renters at his Woodinville home to burn down the residence several times before one of the tenants contacted authorities.”
“According to police transcripts taken from the recording, Poole said he was ‘dying’ financially and unable to keep up with payments for the business and his real estate holdings. In addition to paying him for the arson, Poole told his tenant he would be hired to rebuild the house after it burned down. ‘I know we’ve got about $270,000 to rebuild,’ Poole allegedly told the man. ‘And that,’ he added, ‘would not only save the house, but it would, um, create a job, too.’”
The Seattle Times from Washington. “One out of every 13 homes has entered foreclosure since 2006 in the Lakeland neighborhoods of Verona, Verona North and Verona South, most in the past year. More and more, Rich Faires’ job as property manager for the Lakeland Homeowners Association is to make foreclosed houses in this planned community of 2,800 homes look lived in. Four years ago, dozens of families competed to buy the two-story frame houses in Lakeland’s new Verona subdivision. The empty homes represent a sad ending to an era when many borrowers got a house without a down payment or even proof of a job.”
“‘It all speaks to a time when … all you needed was a heartbeat to get a loan,’ Faires said.”
“In King, Pierce and Snohomish counties, nearly 6,300 homes received a foreclosure notice in the last three months — a threefold increase from just two years ago. One-third of Washington homeowners who financed with adjustable-rate mortgages are still paying low, introductory rates. Those teaser rates, some as low as 1 percent, will jump in the coming year. In most other states, those low initial rates have already expired, according to the Washington Budget & Policy Center.”
“‘When they reset, it’s not going to be pretty,’ said Glenn Crellin, director of the Center for Real Estate Research at Washington State University.”
“In the Verona neighborhood…the first houses sold in 2004 for about $400,000. By the time the last houses were built in 2006, the same models were selling for more than $600,000. Yet properties in the area seemed a bargain compared with Seattle. In 2005, Marina and Andrey Samoylenko…purchased a $575,000 five-bedroom home on Montevista, with a no-money-down mortgage from Countrywide Home Loans. The mortgage payments were about $3,000 a month, the couple said. Andrey worked for Countrywide as a loan officer and the couple said they could afford the mortgage.”
“In 2006, they refinanced with his employer and dropped their monthly payment to about $1,500. Under the financing terms, the couple was paying a small fraction of the interest owed. The unpaid portion was added to their principal balance. Andrey, increasingly unhappy at Countrywide, left for two new jobs — one at a security firm, the other at a local supermarket. Marina worked with him. Last year, both the security firm and the grocery store cut the Samoylenkos’ hours.”
“By January of this year, their monthly payment had jumped and they said they owed $640,000 on a home now worth about $400,000. A real-estate agent negotiated a ’short sale.’ Despite paying tens of thousands of dollars toward their mortgage over the past four years, the couple will walk away with nothing. The Samoylenkos, who shared their story reluctantly, said many of their neighbors could tell the same tale. ‘Step by step, for 10 years, our dream was getting closer,’ said Marina. ‘Now, it’s like someone is taking our dream away.’”
“Michelle Henry and her husband were part of the early wave of homebuyers in Verona. She remembers being directed to Countrywide and getting their new house with two no-documentation loans and nothing more than a $500 earnest-money check. The builder covered the closing costs. ‘I was really surprised we were able to get a mortgage when we already had two other houses,’ Henry said. ‘Clearly we should not have qualified.’”
“Luckily she and her husband sold their two other homes shortly after they moved into the new one and refinanced. But she didn’t understand how young families could afford to buy: ‘You see people in their mid-20s buying half-million dollar homes and you wonder, ‘How in the world did they get the money to do that?’”
“Janet Rogers thought she was doing everything right. When her income as a real-estate agent plummeted last year and she fell behind on mortgage payments, she contacted her lender to try to avert foreclosure of the Kent home she’d lived in for 15 years. In mid-January, she said, the lender told her it had canceled the foreclosure and worked out a loan modification. Then in February, a stranger knocked at her door and said he had just bought her house at a bank auction.”
“‘Before last year, I’d never missed a payment,’ Rogers said. Now she and her daughter have moved into her sister’s two-bedroom condominium. ‘It’s humiliating.’”
The Idaho Business Review. “Mike Pennington comes across as an optimist, but not a blind one. Not overly hopeful and assuredly not too cynical, he takes caution when speaking about the trends he sees in his work as new homes sales manager for John L. Scott Real Estate in Meridian. ‘There are so many elements at work I don’t think anybody can accurately guess,’ he said last week ‘I think we’ll spend the rest of the year cleaning up this foreclosure/short sale thing,’ he said.”
“But even with foreclosures at levels that were unheard of a few years ago, he thinks home prices are bottoming out. ‘I think that’s probably generally true,’ he said. ‘I think this thing has been squeezed down so tight for the last three years that I don’t think there’s a lot of room to go, unless there’s a total economic collapse – and I don’t think that’s going to happen. I think we’re at the bottom.’”
“On April 10, there were 614 resales pending in Ada County, up 122 units from the previous month. Pending resale numbers haven’t been that high in 18 months. Charlie Nate, president of (a) foreclosure-tracking company, said he doesn’t expect any improvement in the Treasure Valley housing market until the record number of foreclosures is whittled down substantially, which he thinks will probably start to happen in late 2009 or early 2010.”
“Until then he thinks foreclosures will continue at a plateau of between 600 and 800 a month, a wild contrast to the about 100 a month that was normal for 2007.”
“‘Once we see those foreclosures stop hitting the market, we stop seeing an influx of new houses, then the bottom is close and we’ll see that turnaround,’ he said. ‘If you see 800 a month coming on the market, that puts a screeching halt to new build jobs.’”
The Statesman Journal from Oregon. “All we have to do is to get Washington to listen to the best idea I’ve heard to end the decline of housing prices and, thereby, restore our confidence in the most important asset most Americans ever own. The idea comes from economist A. Gary Shilling and real estate developer Richard S. Lefrak.”
“Their suggestion: Don’t think about artificially low mortgage interest rates and other stop-gaps. Instead, eliminate the oversupply of houses. Too many were built during our speculative bubble. And, by the way, don’t spend a dime of taxpayer money doing it.”
“How can this be done? Simple: Open our borders to immigrants who can buy a home in the United States. Let one million immigrants per year do this for two years and the entire oversupply of homes and condos will be absorbed. Supply will no longer dwarf demand. Prices will stabilize. The most important asset owned by the vast majority of Americans will, once again, be a source of pride and security.”
“Scott Burns suggests in his April 19 column that one solution to the housing glut is to allow 2 million immigrants to enter the U.S. and each buy a house…Many homes are being lost because the jobs are gone. Where will these immigrant millions work? Who will not have a job because they took it?”
“I’m all for legal, controlled immigration so our economy and services are not strained. However, to paraphrase another, ‘If illegal immigration was good for the economy, California would be the most prosperous state in the union.’”
“I would add, Oregon wouldn’t be far behind.”
The Oregonian. “At first glance, the federal government’s all-out attempt to jolt the housing industry back to life appears to be working in Oregon, particularly for first-time homebuyers taking advantage of falling home prices. Just don’t hold your breath. Government lures probably won’t be enough to turn around the cold market. Early 2009 declines in sales prices showed there’s still room to fall, especially as unemployment spikes and other gloomy economic news hammers consumer confidence.”
“‘One of the characteristics of the 2009 market is I don’t think anyone really knows what’s ahead of us in the next seven to eight months,’ says Kathy MacNaughton, a broker…who focuses on property 20 minutes from downtown Portland. ‘The big question buyers have out there is: Will it drop lower?’”
“First-time buyers Jonathan Eng and Lindsay Benson…who couldn’t find much in their price range a couple of years ago, have found plenty on the market these days to fit what they were looking for in the $200,000 to $220,000 price range. They recently closed on a $259,900 English Cottage in North Portland. The price was more than they originally wanted to spend but exactly what they wanted after eight months of shopping.”
“And, because of a motivated seller, they were able to negotiate the price down by $25,000 and got perks including closing costs, a new sewer line and a new furnace. To boot, the couple qualify for the federal government’s $8,000 tax credit. ‘We just luckily timed it right,’ says Eng, a 29-year old personal trainer. ‘There was definitely a lot of options out there. Things got better and better the longer we waited.’”
“With the U.S. Treasury Department’s ‘Making Home Affordable’ program, even more help for existing homeowners could be on the way. Some critics say the program doesn’t give banks big enough incentives to take on the cost of bailing out struggling homeowners. Senior loan officer Steve Emory with Pacific Residential Mortgage in Lake Oswego says the programs still put the majority of the costs on banks’ shoulders.”
“‘It’s not going to help hardly anybody,’ Emory says. ‘This program is designed to save 9 million people. I don’t think so. The lender still takes the first big hit.’”
“Rachel Freed, a real estate agent with a focus on close-in Portland neighborhoods, says at the dizzying heights of the housing market, a home would have 15 offers and prices were inflated by $30,000 or more. ‘Neither I nor my colleagues enjoyed those times or wanted it to last,’ Freed says. ‘Sellers were upset, buyers were freaked out.’”
“Gerry Mildner, director of the Center for Real Estate at Portland State University, says buying speculatively is what got the industry into trouble in the first place. He offers this advice: ‘Pick the house that suits your needs to live in seven to 10 years. Don’t worry about appreciation, it’ll go up naturally. The lesson that we learned over the past two years is it’s not always up.’”
