The Housing Bubble

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It’s Friday desk clearing time for this blogger. “The Maricopa County treasurer began sending out tax bills last week and will continue through the end of the month. Much of the increase is due to the state equalization tax, which is back after a three-year hiatus. The tax, which helps fund education in Arizona, adds $58 this year for a homeowner with a property assessed at $176,000, according to an Arizona Republic analysis. Since 2007, Valley home prices have plummeted 50 percent, but it will take two more years of tax bills before property owners see that overall decline affect their property taxes.”

“‘I can’t afford any increase in my bills now,” said Arlene Morales, who lost her job with a home builder late last year and has been working temporary jobs to pay her mortgage. She has been working with her lender for the past five months, trying to get her loan modified and payment lowered. ‘How can my property taxes go up when I can’t even sell my home for half of what, when it was new, I paid in 2004?’”

“Capping a week that highlighted the one-year anniversary of the financial collapse, a panel aimed at getting to the bottom of its cause is just now getting on its feet. The Financial Crisis Inquiry Commission’s members want to ’shed light’ on why the collapse happened and make recommendations to avoid future crises. Several Republican appointees, including former White House official Keith Hennessey, talked about the need to examine the housing crisis and ‘politically popular laws passed by Congress that exacerbated’ the problems.”

“Hennessey, an economic adviser under President George W. Bush, wants to delve into the ‘relaxation of lending standards to people who couldn’t really afford new homes,’ a topic often repeated by Republican lawmakers as the cause of the financial crisis.”

“By contrast, former Sen. Bob Graham, a Florida Democrat, said the commission needs to explore how consumer protections went awry because that’s high on the congressional agenda.”

“Already tainted by scandal because of illegal practices used in its voter registration drives last year, the nation’s largest grass roots community organizing group now appears to be littered with even more employees engaging in possibly criminal behavior. At issue are a series of secretly filmed videos at ACORN offices in Baltimore, Washington, D.C., and New York City showing employees answering questions from a pair of 20-somethings posing as a prostitute and pimp (actually they’re an amateur filmmaker/MBA student and a college journalism student). The duo sought advice on how to get help buying a home in which to run a sex ring for underage girls from El Salvador, all while dodging taxes on the whole illicit endeavor.’

“You’re not a hooker, but a ‘freelance performing artist’ on loan documents, the girl is told in Baltimore.”

“California Attorney General Jerry Brown Thursday issued subpoenas to three leading credit rating agencies as part of the initial stage of a probe into their role in the financial crisis. Brown announced at a news conference in San Francisco that he has subpoenaed Standard & Poor’s, Moody’s Investors Service and Fitch Ratings.”

“He said the agencies ‘gave their seal of approval, the highest rating’ to securities backed by high-risk subprime mortgages ‘that were highly dangerous and in fact, wrecked the lives of millions of people.’ Brown called it “one of the real dark sagas of American financial history,” citing figures of 4.9 million foreclosures nationwide, a nearly 5 percent unemployment rate increase. Brown said the credit rating agencies earned billions in revenue and worked behind the scenes with the same Wall Street firms that created the securities.”

“‘We believe that there’s been a wrong, and there must be a remedy,’ Brown said.”

“The White House is considering extending an $8,000 tax credit for first-time home buyers, which has helped to boost sales by more than 1 million this year. Real estate agents, bankers, and homebuilders launched a campaign encouraging Congress to continue the program for another year, with the slogan: ‘Don’t Let America’s Real Estate Recovery Expire.’ Executives - including Fannie Mae’s Michael Williams…have attributed improvements in home sales and prices to the credit.”

“Gary Dwyer, owner of Buyers Agents of Boston, said one client recently found himself among 40 buyers bidding on a foreclosed property in Dorchester that was listed for $194,000. His client offered almost $20,000 over the asking price, Dwyer said, but lost out.”

“Aaron Gornstein, executive director of Citizens’ Housing and Planning Association, a Massachusetts affordable housing organization, said he hopes the White House will support an extension. ‘We’ve heard from home buyer counselors as well as real estate brokers who say it has been an important factor for getting people off the sidelines so they could purchase their first home,’ Gornstein said.”

“For the first time since January, both the number of homes sold in Santa Clara County and their median price fell from the previous month, a surprising reversal in a housing market that had been steadily climbing out of the burst real estate bubble.”

“Quincy Virgilio, president of the Santa Clara Association of Realtors, said decreasing inventory — especially of bank-owned foreclosure homes — and longer escrow times are additional reasons August sales were significantly less robust than July’s. Whatever the reasons for August’s dip in sales, real estate agents said demand for bank-owned foreclosures remains very high.”

“‘It’s not unusual to get 10 offers’ on ‘reasonably’ priced foreclosure properties, said Judi Seip, an agent with Coldwell Banker in Cupertino.”

“Some are intentionally underpriced, other agents said, which sometimes means 20 or 30 bidders make offers. One of Seip’s clients recently offered about $16,000 more than the asking price on a home priced about $440,000, and had a 50 percent down payment, but still lost the house to another bidder. Seip said she’s working with several buyers who hope to find homes and close escrow by Nov. 30, which is the deadline to purchase a home and receive a credit of as much as $8,000 on federal taxes, an element of the economic stimulus plan. ‘What happens in December is anybody’s guess,’ she said.”

“The median price paid for all new and resale houses and condos in the nine-county Bay Area for August stood at $360,000, down 8.9 percent from July and 19.5 percent lower than a year ago. Fewer foreclosure sales help explain the month-to-month sales drop, said the DataQuick report.”

“Saraya Motley, a Realtor in the Oakland office of Red Oak Realty, said the smaller inventory of foreclosures in the Bay Area is the result of earlier foreclosure moratoriums that began last September and ended in May. ‘All the inventory on the market was drying up,’ she said. ‘There are now properties that are starting to trickle into the market but it’s happening in a controlled way.’”

“There is a widely shared concern on Capitol Hill that without the tax credit, home prices will begin falling again because job losses will continue to curb demand and reverse this year’s gains. ‘The bidding wars that are out there, the tax credit is a part of that,’ said Brian Marquette, owner of American Family Financial in Sarasota. ‘I have never had so many people buying houses in my 18 years of lending and a tremendous number of them are being motivated by the first-time buyers tax credit. ‘If they eliminate the tax credit it would cause a big slowdown. I’m worried about that.’”

“Dean Baker, co-director of the Center for Economic and Policy Research, argues the money behind the tax credit could be used for more pressing matters — like unemployment insurance, food stamps and aid to state and local governments. ‘It’s really bad policy. You’re throwing a lot of money, in my mind, in the garbage,’ said Baker, who actually took advantage of the $8,000 credit this year.”

“As the housing market began booming in mid-2000, Wells Fargo & Co. teamed up with prominent African American commentator and PBS talk show host Tavis Smiley and financial author Kelvin Boston, the host of ‘Moneywise,’ a multicultural financial affairs show, to host something called ‘Wealth Building’ seminars in black neighborhoods.”

“Smiley was the keynote speaker, and the big draw, according to Boston and Keith Corbett, executive vice president of the Center for Responsible Lending, who attended two of the seminars. Smiley would charge up the audience — and rattle the Wells Fargo executives in attendance — by launching into a story about how he hated banks, and how they used to refuse to lend him money for his real estate projects in Compton, Calif., and elsewhere. After Hurricane Katrina, Smiley also emphasized the importance of building assets and wealth, saying those who had done so were able to leave New Orleans, while people with nothing had to stay behind, Boston said.’

“In hindsight and with the collapse of the subprime mortgage market, Boston said he has second thoughts about participating in the seminars. ‘Were we probably used? We probably were,’ he said. ‘If I had the chance to do it over again, would I do it in a different manner? Probably. You look back now and you feel for the homeowner who could have qualified for a better mortgage and got the costly type of mortgage. That concerns me a lot, not just for Wells Fargo, but for everybody out there, Citigroup, Countrywide … they were all doing the same events.’”

“But at the time, Boston said, having a major bank doing outreach in the black community was considered an encouraging development, after so many years of redlining and restricted access to credit. ‘We all thought at the time that we were doing a positive thing,’ he said.”

“A Chicago developer who sought to convert several Miami Beach hotels into condos used nearly $9 million in investor money to fund a luxurious personal lifestyle and finance other real estate projects, according to a civil action filed by the Securities and Exchange Commission.”

“Falor arrived in South Florida in 2004 and soon became a high-profile player in the region’s real estate boom. He frequently appeared at real estate industry events extolling the investment virtues of hotel condos. When the real estate and financial markets imploded in 2007, they took down many of Falor’s projects. The entity that owned the Edison and Breakwater hotels on South Beach’s Ocean Drive filed for Chapter 11 bankruptcy protection in 2007.”

“The properties were sold at a public auction in June 2008.”

“There’s a pool at Stonemark condominiums in Fresno, but no one swims. For-sale signs dot the complex. Dozens of padlocks signal a ghost town. Lenders are busy at this 106-unit complex in east-central Fresno. All but 10 are bank-owned or going through foreclosure, and property values have dropped by 90% or more.”

“A Fresno doctor…testified that James McConville had told him that using middlemen to receive loans is a common financing method. McConville said he would make all mortgage payments, but he didn’t. And the Fresno physician — who had met McConville through a relative and attended a promotional session with other investors — started getting default notices.”

“‘I trusted these people,’ the physician said during the deposition. ‘I got snowed.’”

“The housing bubble led the way for the recession and nowhere was the drop worse than here in Nevada. So, as signs of recovery emerge, where does our housing market stand today?”

“‘The sales volume is up from last year substantially, more than 40 percent, approaching 50 percent,’ says Ken Amundson, the president elect of the Reno/Sparks Association of Realtors. ‘So, the number of transactions is up. The difference is the pricing has gone down.’”

“We still have homes to sell and we still have more to go. We need jobs and income for individuals to soak up that market,” says Amundson who figures that turn around is still several months off.

In the meantime he advises caution. it all depends on your motivation. ‘The buyer buying for the right reason, ‘I want a home. I want a nice place to live and raise a family,’ this is a good time for that because there are both incentives and pricing that’s affordable and sustainable in a market that’s rational as opposed to some of the unnatural things we might have done years ago.’”

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