The Housing Bubble

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It’s Friday desk clearing time for this blogger. “The Wichita area appears to be losing ground in the foreclosure epidemic. ‘For us, it’s directly tied to our employment situation,’ said Stan Longhofer, director of the Center for Real Estate at Wichita State University. ‘This is about the time when people who got layoff notices are starting to get hit with foreclosures.’”

“He said that the easy financing may not have led to a large housing bubble, but it did leave quite a few people with little equity when it comes time to try to sell the house. The homes haven’t lost value, but laid-off workers may discover that their homes haven’t appreciated much in recent years. So, he said, instead they may let the house go into foreclosure. ‘They’re not really upside down,’ he said, ‘just not upside up enough.’”

“Earlier this year in Los Angeles, Goldman Sachs took possession of the home of Gladys Aguirre, a housecleaner who’s married to a construction worker. Together, the couple listed monthly earnings of $7,480, including $3,480 from a job she’d held for two months. Aguirre originally took a $444,000 subprime mortgage on Sept. 1, 2005, from a subsidiary of big subprime lender Ameriquest Mortgage Co., which shut down in 2007. The adjustable interest rate sent her monthly payments zooming to $3,800 from $2,479, and Aguirre couldn’t keep pace on that loan or a $119,000 second mortgage. She filed for bankruptcy protection.”

“Aguirre’s Los Angeles lawyer, Eber Bayona, declined to discuss her case, but said that subprime loans amounted to ’setting up the person for failure’ because interest rate adjustments hit borrowers with ’shock payments.’ For example, he said, loan agents promised applicants that they could buy a $600,000 house for payments of $1,200 a month, and the buyers ‘never read the fine print … (and) didn’t know their interest would increase and that eventually they would lose their house and their money.’”

“The foreclosure crisis started with sub-prime borrowers, but in the last six months, it has increasingly reached unemployed homeowners like Cesar Hernandez. Four years ago, the construction worker put in 50 hours a week. He bought a three bedroom house in Palmdale for his wife and daughter. But he hasn’t worked now for eight months, and he can’t make his mortgage payments. He has two weeks to get out of the house.”

“‘I don’t know what I’m gonna do,’ Hernandez said, nearly breaking down into tears. ‘I just really don’t have a place to go.’”

“About 19 miles east of Lodi, you’ll reach a 505-acre piece of property known as Higgins Ranch. Until the economy took a nosedive, this was the future site of a 600-house development. It was going to change the town of Wallace. Then the market dropped.”

“The two developers who owned the property each filed for bankruptcy in 2008, with one of them reportedly owing various banks more than $972 million. Now Higgins Ranch is up for auction, with a minimum price of $750,000. It’s a far cry from the $3.2 million the developers had briefly sought when they placed it on the market. The amount is also less than the reserve in a spring auction, when nobody bought it for the minimum price of a little less than $1.2 million.”

“‘Higgins Ranch would best be described as a gleam in someone’s eye,’ said Chuck Cantoni, a long-time member of the Wallace Community Services District.”

“If you’re listing your house in Utah County, be ready to slash your price. According to data released by the Utah Association of Realtors and the Salt Lake Board of Realtors…the average price dropped from $229,900 in the third quarter of 2008 to $215,000 in the third quarter of 2009. Bruce Arnett wanted to move his family into a larger home so his father, who has multiple sclerosis, could move in. He took the plunge and moved from his house in Eagle Mountain to Traverse Mountain in Lehi about two weeks ago. He decided to rent out his Eagle Mountain home.”

“‘We knew the prices were going to be the lowest that they’ll be for several years,’ he said of his newly purchased Traverse Mountain home.”

“Lindsay Jones is hoping the third time’s the charm. The aspiring first-time homebuyer has fallen out of escrow twice, and is waiting to find out if her offer on a third property will result in the actual purchase of a residence. She started looking seriously in the spring, wooed by tax incentives and her conviction that home prices were at or near the bottom. Jones hoped to take advantage of an $8,000 federal tax credit for first time homebuyers that will end in November.”

“‘That was a huge factor,’ she said. ‘It figured into my purchase price, because it was part of my budget for making repairs. You walk into even the ones in nice areas and they’re seriously gutted. People got really upset and kicked holes in walls or left all their trash everywhere or took off with major appliances.’”

“The Obama administration endorsed plans to extend an $8,000 tax credit for first-time homebuyers, saying it is helping stabilize the nation’s housing market. The tax break has ‘brought new families into the housing market and contributed to three consecutive months of rising home prices,’ Treasury Secretary Timothy Geithner said.”

“Lawmakers also said they won’t extend the break beyond the new April 30 deadline. ‘The American people should understand this — and the affected industries — this is the last extension,’ said Senator Johnny Isakson, a Georgia Republican. ‘Tax credits like this only work by creating the sense of urgency to take advantage of them.’”

“A Senate committee reached a compromise yesterday to extend the $8,000 tax credit for first-time home buyers, a boost the housing industry expects will help it pull out of its two-year-old downturn. Lawmakers in Washington also added a $6,500 tax credit for other primary-home purchasers and raised the qualifying income limits to $125,000 for single taxpayers and $225,000 for joint taxpayers, housing-industry sources said.”

“The credit has helped, acknowledged Marshal Granor, a principal in Granor Price Homes, of Horsham. But he added, ‘I’d love for it to go away, for a month.’ ‘People who believe there is no rush aren’t buying, they are waiting for more bargains from more squeezed sellers,’ Granor said.”

“Exactly who made Bernadine Shimon think that she could buy a new house shortly after declaring bankruptcy and losing another home to foreclosure? The American taxpayer, that’s who. Without a Federal Housing Administration willing to guarantee a $125,000-plus mortgage, this Denver-area schoolteacher’s recurring ‘dream of homeownership’ could not come to pass. Shimon’s down payment was a tiny 3.5 percent. This single mother is so strapped that she had to cash in her retirement savings to come up with the 3.5 percent. Her case was cited in a New York Times article about, not surprisingly, the sad shape the FHA finds itself in.”

“Much of the blame for the housing bubble-then-bust goes to these government agencies. Kenneth Donohue, inspector general of the Housing and Urban Development Department, seemed to be shaking his head. ‘What does the FHA think it is doing by asking only 3.5 percent?’ he asked. (FHA is part of HUD.)”

“But committee Chairman Barney Frank of Massachusetts insists that these mortgages are needed to ‘keep prices from falling too fast.’ Thing is, we can’t support real-estate values with shabby lending practices. That’s what got us into trouble.”

“Florida’s economy remains in a downward spiral, according to sales tax statistics released this week by the Florida Office of Economic & Demographic Research. Consumer and business spending statewide fell 7.5 percent from August 2008 to August 2009. Spending in Palm Beach County dipped 7.4 percent, while Treasure Coast sales fell 4.2 percent from a year earlier.”

“Blame the real estate bubble of 2005 and 2006. Florida’s property frenzy sparked rapid rises in home prices, rampant overbuilding and record-low unemployment. Now, the state is suffering from the hangover created by the real estate party. ‘We’re coming out of a deeper hole than the nation at large,’ said University of Central Florida economist Sean Snaith.”

“When the Monterrey apartments in south Fort Myers sold for a record-breaking $79.6 million in March 2006, its buyers had high hopes of converting its 408 units into condominiums at a nice profit. But less than four years later, the luxury complex near HealthPark hospital is the subject of a $65.8 million foreclosure filed by the lender. Monterrey was never turned into condos and it remains a rental community.”

“As the residential real estate boom peaked in 2004 and 2005, there was heavy demand by investors and home buyers to get into the market and apartment complexes provided a quick solution when demand couldn’t be met by existing houses and new construction, said Michael Timmerman, a Naples-based senior associate with Fishkind & Associates. Developers bought large apartment complexes and sold the individual units as condos, creating what was almost ‘an infinite amount of product people could buy,’ he said.”

“But as prices slid starting in early 2006, condos became less attractive and harder to rent out — now it’s often cheaper to buy or rent a house, Timmerman said.”

“One of the hardest hit is Renaissance, converted from apartments four years ago at the height of the boom. Foreclosure actions have been filed against the owners of 24 of the 112 units and Bill Davis, who’s on the condo board, said several units have substantial damage inside them from months of neglect. Still, he’s optimistic.”

“‘We’re getting more and more money coming in’ as banks take back the condos in foreclosure and sell them to new owners, Davis said. ‘The landscaping’s kept up, the pools are kept up and we actually have a balance in the bank account.’”

“The number of homes in foreclosure continued to rise in the Portland-Vancouver metro area, according to a third-quarter tally. There were 6,123 total housing units in foreclosure in the third quarter in the Portland-Vancouver area, up more than 78 percent from the 3,432 houses in foreclosure during the same period in 2008. ‘It wouldn’t shock me if it was at least two more years before we work our way through the troubled properties,’ said John Bruce, a mortgage banker with Lake Oswego-based Summit Funding Inc.”

“The local real estate market has lately been hampered by the high unemployment rate and a new wave of ‘option ARMs’ or adjustable rate mortgages, Bruce said. While the values of homes were rising, borrowers were happy with option ARMs, Bruce said. However, many of those loans have now reached a five-year ‘reset’ period in which loan amounts will reflect the true interest amount.”

“‘With the clarity of hindsight, there’s no way they can make those payments,’ Bruce said of home loan borrowers with option ARMs.”

“The foreclosure crisis has taken a turn in California’s wealthy Marin County, according to Miriam Alex-Lute at Rooflines. Marin residents waged a legal fight a few years back to keep out Habitat for Humanity, the charitable group that builds houses for low-income buyers. But now that abandoned, foreclosed houses are showing up in Marin, Lute reports the county is opening the door to Habitat, which will rehab one of the foreclosed properties.”

“Just three years ago, Marin county residents were busy raising money for a legal fight to stop Habitat for Humanity from building four homes affordable to families making under $56,000/year, saying it would ‘blight’ their exclusive neighborhood of million dollar plus houses. (The project is still being debated.)”

“But now they are being welcomed with open arms in another part of the county as they renovate one of the foreclosed homes that even Marin has acquired a passel of. Habitat bought the house, which needs extensive rehab, for $215,00. It doesn’t sound affordable exactly to those of us in more affordable parts of the country, but in a county where the median home price is $800,000, I guess it qualifies.”

“Nothing like a wave of foreclosures to change those ‘Not In My Backyard’ attitudes.”

“The economy is creeping out consumers this Halloween season. Sales of costumes, props and other accoutrements are trending lower this year — locally and nationally — as consumers opt for homemade outfits over elaborate store-bought or rented ensembles. ‘In the 31 years I’ve been in business, it’s the worst year ever,’ said Geraldine Alfieri, owner of Geraldine’s Costumes (in) Cathedral City.”

“Business is down 80 percent over last Halloween, largely because of a lack of conventions and corporate events, she said. ‘Corporate business is almost gone,’ she said.”

“Andy Allen, 86, of La Quinta is going as a hippie. He bought a vest, headband, round glasses and a peace-sign necklace. ‘It’s cheap,’ Allen said.”

“Bridgeport tops the list on a real estate Web site’s index of the best Chicago neighborhoods for trick-or-treating. Zillow compiled its Trick-or-Treat Housing Index, used its own home value index and statistics on density, walkability and crime to find out where kids are likely to get the most candy, with the least walking and the smallest safety risks.”

“Ranking fifth was the trendy Lakeview neighborhood a few miles to the south. Zillow said the ‘beautiful homes’ in the neighborhood could mean plenty of trick-or-treat candy and ‘real estate eye candy.’”

“The North Side’s Rogers Park neighborhood came in fourth, in part for the ’scary good real estate deals’ for adults with housing prices down 16 percent.”

Post off-topic ideas, links and Craigslist finds here. Please visit the HBB Forum.

Post off-topic ideas, links and Craigslist finds here. Please visit the HBB Forum.

The first look at the HBB review of the media and reporting on the housing bubble starts with International magazines, news web sites and newspapers. The total body of work these organizations put together can’t be summarized here, but included are a few examples.

The Best:

1. The Economist - “Average house prices in Sydney.. fell by 5.4% in the second quarter. Other sources suggest a steeper decline. The Commonwealth Bank of Australia reckons that house prices nationwide fell at an annual rate of 13% in the first half of 2004.”

“In other words, houses are more overvalued today than at previous peaks, from which prices typically fell sharply in real terms.(T)wo-thirds (by economic weight) of the world that we track now has a potential housing bubble.”

“The ratio of prices to rents is a sort of price/earnings ratio for the housing market…To bring the ratio of prices to rents back to equilibrium, either rents must rise sharply or prices must fall.”

2. The Financial Times. “British and American policymakers appear to regard the recent period of house price inflation in their countries with equanimity. As long as neither inflation nor unemployment soars suddenly, we are told, the current level of house prices is sustainable and economic growth is not threatened.”

“But not all central bankers are so insouciant. Nout Wellink, president of the Dutch central bank, last month warned that a hangover from the property boom could well exacerbate the next downturn. Both the Dutch experience and the history of housing booms suggest that this counsel deserves to be taken seriously. However, it is probably already too late for the leading Anglo-Saxon economies to escape lightly from the consequences of their property bubbles.”

3. Bloomberg. “China’s rising property prices pose a threat to the stability of Asia’s second-largest economy. Excessive growth in housing prices has directly undermined the ability of city residents to improve their living standards, affected financial and social stability.”

“Local officials who fail to take measures to rein in growth will be held to account…’The State Council’s tone is very harsh,’ said Fan Weiwei, a Beijing-based economist. ‘People’s expectations of future property prices will definitely be changed. The likelihood of further price surges is becoming minimal.’”

Honorable Mention:

Times Online. “Five years ago Halifax, the UK’s biggest mortgage lender, would grant an interest-only loan only after inspecting the policy documents of an endowment or other investment vehicle. Borrowers who were relying on rising house prices or an inheritance to pay off the loan would not have passed the application process. But Halifax changed its rules in 2000. Now the bank, in line with many other lenders, does not check any paperwork, but regularly reminds borrowers that it is their responsibility to set aside enough cash to repay their loan.”

The worst:

1. New York Times. “‘South Florida, he said, is working off of a totally new economic model than any of us have ever experienced in the past’. Ron Shuffield, president of Esslinger-Wooten-Maxwell Realtors, predicted.”

“‘I just don’t think we have what it takes to prick the bubble’, said Diane C. Swonk, chief economist at Mesirow Financial. ‘I don’t think prices are going to fall, and I don’t think they’re even going to be flat’.”

“It just seems like everyone is doing it,” Laurie Romano, a 26-year-old self-described real estate investor, said with a giggle.

2. Wall Street Journal. “”Real-estate prices can’t tumble on a flurry of panic selling, as happens when a stock-market bubble bursts. After all, everyone needs a place to live. ‘Stocks have a single market, low transaction costs and the capability of people to pile on nationally,’ Robert Curran at Fitch Ratings, ‘Housing markets are all local. Transaction costs are large. To sell your assets you have to move.’”

“Homes may not appreciate as quickly, or at all, for a while. Nobody likes that.”

The market observers, the good:

“Danielle DiMartino writes for the Dallas Morning News…’Let’s say for a moment that all of the credit that’s being extended to purchase homes at inflated prices isn’t of the highest quality. The proof here locally is that foreclosures have gone through the roof. Now extend that scenario to the really hot markets that have yet to suffer flat, not falling, just flat, home prices and you get to what keeps me up at night. Maybe even Alan Greenspan, too.”

“How will federally established Fannie and Freddie and all the other mortgage debt holders react to the inevitable rise in delinquencies and foreclosures?”

“I worry about housing so much because of its potential to harm so many families. Stock market bubbles impact those who can afford to buy stocks. When that bubble burst in 2000, that included about 45 percent of Americans. But a record 70 percent of Americans now own a home. So housing bubbles have the ability to inflict much more pain on communities and our broader economy.”

“The powers that be insist there’s no housing bubble. They have to, mass delinquencies and foreclosures are simply not an option, not with the risks built into the mortgage-finance system. The general concern about these instruments is that they’ve yet to be ‘tested’ by an inevitable market downturn. Is there risk in today’s lax lending standards?”

Bill Fleckenstein. “It might be hard for folks to step back and see a speculative housing environment for what it is — especially when the frenzy has furnished a lifestyle beyond their means. But we all can’t live forever in dream homes financed by dangerous debt levels. The “math” suggests that this tenuous fantasy ultimately will fail. Not everybody in this country can live in a $1 million house or some higher-priced mansion. The income necessary to support the debt service just isn’t there.”

“Housing got a boost in the stock mania because people rolled their gains into real estate. That was on shaky ground, as we dealt with the aftermath of the stock bubble. But then we got on “firmer” ground in the last 15 months or so, via all the government stimulus and low interest rates that sparked a speculative frenzy in housing, which continues to this day.”

“One of the most obvious would be to raise short rates to a level higher than the underlying rate of inflation (i.e., 5% to 6%) and take back some of the absurd stimulus that Alan Greenspan has foisted on the economy repeatedly over the last decade.”

“This would simultaneously increase savings, reduce consumption and hurl us into recession. But we are headed there anyway. So let’s get on with it before even more damage is done.” Stephen Roach : “The longer we wait, the more treacherous the endgame.”

“Stephen Roach. “The Fed is not only hard at work in the engine room in keeping the magic alive, but is has also become the intellectual architect of the New Macro.”

“Time and again, since Alan Greenspan rolled out his New Paradigm theory in the late 1990s, senior Federal Reserve policy makers have taken the lead role as proselytizers of a new macro spin that condones the saving, debt, property bubble, and current-account excesses of the Asset Economy.”

“Chairman Greenspan has made light of traditional measures of household indebtedness, even going so far as to urge consumers to move from fixed to floating rate obligations. Fed governors have also borrowed a page from the Roaring 1990s in denying the possibility of a housing bubble. Governor Bernanke has also led the charge in coming up with a new theory of national saving, that the United States is actually doing the world a favor by absorbing a so-called glut of global saving.”

The Bad:

Barbara Cocoran. “I think it’s a much scarier world that we live in. When kids are scared, where do they run? They run home. People are staying home more..it’s really reassuring for people to know they own the walls around them. People have also become more distrustful. People don’t trust the government, they don’t trust Corporate America, they don’t trust the stock market. They trust their house.”

“I think the bubble theory is nothing more than an intellectual expression of people’s typical worry that good times can’t last forever.”

David Lereah. “My view is there’ll be air coming out of a balloon rather than a balloon popping because markets are too healthy right now. Once I start to see inventories increase in a meaningful way in some areas, then I’ll start to see where these balloons might be,’ Lereah said. ‘Right now I can’t find them.’”

“The NAR’s chief economist said, ‘What we’re seeing is that real estate is no longer just a place to live. It’s a viable alternative to stocks and bonds..Sept. 11 changed real estate forever.’”

“Federal Reserve Chairman Alan Greenspan…told the House Financial Services Committee in testimony that he sees ‘no reasonable basis’ for the two giant mortgage companies to hold massive mortgage portfolios, which together top $1.5 trillion. Noting that the problems ‘are almost inevitable,’ Greenspan warned House lawmakers that Congress ought to consider forcing the two to slim down their portfolio holdings as they ‘potentially create ever-growing potential for systemic risk down the road.’”

“Greenspan added: ‘Enabling these companies to increase in size…we are placing the total financial system of the future at a substantial risk.’ He added that while the risk now is ‘virtually negligible,’ he doesn’t believe that scenario will last if Congress allows them to continue to expand.”

“Former Federal Reserve Chairman Alan Greenspan said he has ‘no particular regrets’ and that the deepening slump in the U.S. housing market isn’t a result of his policies. ‘Markets are becoming aware of the fact that the decline in house prices is not stopping,’ Greenspan said today in Oslo. ‘I have no particular regrets. The housing bubble is not a reflection of what we did, as it is a global phenomenon.”’

“The collapse of the U.S. subprime market ‘was a shocker because no one expected it,’ Greenspan said.”

“After the 2001 recession, the Fed cut its benchmark rate to a four-decade low of 1 percent. That move, along with a hands-off approach to regulation, has brought Greenspan under fire as the bursting of the housing bubble and the subprime mortgage crisis threaten to sink the economy.”

“Former Federal Reserve Chairman Alan Greenspan ignored warnings about the Fed’s low interest rates that fueled real estate speculation and the current housing recession, said Allan Meltzer, professor of political economy at Carnegie Mellon University in Pittsburgh. ‘I think he lets himself off much too easy,’ said Meltzer, author of a 2002 book on the early history of the central bank, in an interview. ‘He acknowledged maybe his policy had a little bit to do with it. But he found all kinds of other reasons’ to blame for the housing and mortgage problems today.’”

“He said the Fed was worried about deflation. Meltzer said he met then with Greenspan at the former chairman’s invitation and disagreed with the concern over deflation.”

“‘I said, ‘Alan, we have had six or seven deflations in the United States in the history of the Federal Reserve, and only one of them ever had terrible consequences, and that was 1929 to 1933,’ he said. ‘That was because deflation was not only bad, but because the money growth was lower and lower and lower, so the expectation was deflation would continue. In all the other six, nothing happened.”’

“Greenspan ‘continued to believe that deflation was the problem. He was wrong about that, simply out and out wrong,’ Meltzer said.”

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Although the stock market crashed in 1929, Great Depression 1.0 didn’t get fully underway until the early 1930’s, when the cumulative damage from massive unemployment, farm foreclosures, dead businesses, and overall national malaise joined up with an increasingly hostile Mother Nature to make American lives even more miserable than they already were.

Now that America has weathered the first round of Big Business and institutional failures of this recession, and emptied what’s left of our pockets on sly “giveaways” like Cash for Clunkers and an $8K inducement to take on massive mortgage debt, the cold winds of December reckoning loom large. How long will it take before GD 2.0 hits its stride and we all admit that the well-orchestrated booster-ism our media has been feeding us hasn’t worked out so well this time? As any reader here can testify, just because something is trumpeted over and over by those in “authority” doesn’t necessarily make it so.

Last week we saw a lot of rah-rahing from the real estate industry. All that pent up demand from realtors searching for something, anything to crow about has finally spewed forth like the petard we know it to be.

It seems that existing home sales rose 9.4% over August. True, and auto sales jumped in July! Seduce the naïve and the desperate with a meaningless tax credit and watch as a million of them jump into the shark tank. As always we’re assaulted by the NAR with anecdotal evidence of higher-than-asking-price bidding wars, helped along by the federal tax credits, state forgiveness grants, and local incentive programs. No one wants to talk about how many of those winning bids fell through because no one would finance them. Or the fact that even with all the grants and give-aways, a significant percentage of these aspiring homoaners will be financially unqualified and/or found to have fraudulently represented themselves on the applications.

It’s been hard for some of us to hold fast and wait for the real downturn in housing prices to hit when Alt A and CRE loans begin to reset next year. And in the back of our minds the old adage, “don’t bet against the fed” (or an administration under the gun,) has never been truer. But a lot of us have chosen to hang in there anyway and wait for the inevitable. Either housing prices fall significantly, or wage inflation rises. Under the current system of debt economics there is just no way that wages can reach parity with housing prices without some major adjustment to the equation—gimmicks and greenspanery to the contrary.

It’s not necessarily because we’re pessimistic by nature, or because we have some vested emotional interest in seeing our government and institutions all come tumbling down; it’s just reality. At some point, government price supports will run out of funding and the subsidies will stop.

As an unabashed supporter of the Obaman ideal, (if not their methodology,) I am in a personal quandary….my own ethical hedge fund if you will. While I want the guy to succeed in addressing the myriad calamities besetting our nation, I also want a lot of our markets and entrenched systems to fail and be reformed into something more closely resembling a level playing field. It’s hard to know which one to root for. What we have now is so skewered in favor of the few—and so badly administered– that there is no real sense of national cohesion or purpose anymore. Even support for the military, traditionally the last bastion of patriotic fervor, is badly eroded. So while I’m not certain I want an economic catastrophe, I’m also not entirely certain it might not be cleansing.

We may be about to find out.

When end-of-fiscal earnings reports have all been filed, and the press leaks begin in earnest, we’ll see just what sort of accounting scaffold has been propping up the Potemkin Village of our nation’s banking system. We’re old hands at this by now, having watched the pattern emerge over the last two years, and I’m sure no one on this board will be all that surprised when WF, BofA and Citi (and maybe a pension fund or two,) go down in a hail of weasely media releases.

But how will Wall Street, already roiling with the heat from an enraged and increasingly bankrupt citizenry, wrestle this latest round of bailouts onto the back of the American taxpayer? In addition to providing life support to our failing auto unions and housing industry, we’ve already been forced to save China’s state investment fund (CIC) with the AIG bailout. Then essentially compensate Israel for Bernie Madoff’s fund-funneling-gone-awry by anointing Goldman Sachs (this administration’s Haliburton,) as the de facto arm of the US Treasury.

And now we’re supposed to rectify the massive losses of the Saudi royals’ CitiGroup? Yikes. How are we going to do that? By giving it back in the form of $300/barrel oil prices? The dollar is dropping, China is divesting, and the Brazilian real is ascendant. That giant sucking sound we’re hearing isn’t just our jobs going abroad anymore, it’s the whoosh of the emergency stash flying out of our collective mattresses.

It’s Beginning to Look a Lot Like (a cruddy,) Christmas.

With American consumers defaulting on their debts, maxed out on their credit, and cutting discretionary spending to the bone in attempts to get solvent, one expects that retail sales figures for the so-called holiday shopping season will be even more dismal than they were last year. Are we really expected to dig deep to buy more redundant stuff so retailers can stay in business? How many wiis does one family need? How many cheap socket wrench sets? How many knock-off handbags? One suspects that a lot of the “move up” mentality in serial home buying over the last decade was motivated by a need for more closet space and empty square footage in which to store the family junk collection.

Early this summer, I noticed a precipitous drop in the amount of bulk mail reaching my big rural mailbox. Even the onslaught of glitzy holiday catalogs that normally hits in mid-August has been anemic. I generally save the things in piles out behind the woodshed and bind them into semi-geometrical bales every now and then. Then I cover them with plaster to form building blocks for my ongoing dog palace project. By this time of year, I usually have a knee-high stack of the things, but instead of the usual dozens, I’ve only received a handful so far, and of these, half have switched from glossy four-color to news stock. Even the models look bewildered. This most recent cover of “W” Magazine probably sums up the zeitgeist better than anything historians could ever write about this last year in American consumerism.

Neiman Marcus’ Christmas Book, always an abomination of consumerist excess, is notably restrained this year as well. The clothing is muted to the point of being drab. Gone are the extravagant furs and the “important” jewelry. Even the signature “his and hers” come-ons are a rehash of previous frippery. When Neimans goes spare you know the season is a lost cause.

(For those with strong stomachs, I simply must mention the one glaring exception to my above statement. Perhaps the most asinine serio-comic offering of the decade; a “tricked out” (their description,) cupcake car (!)—complete with matching hat— for $25,000. Somewhere on some exclusive shoreline or staid country klub greens-house, the uberWASP fantasia lives on…..)

In keeping with the New Austerity, I expect to see photo spreads of Michelle and the girls making recycled tree ornaments for the White House Christmas tree and clever little homemade gifts for Daddy–whose state gift of a boxed CD set to Queen Elizabeth 2 was, I suspect, only a symbolic beginning of things to come. Look for winter fashionistas to start touting black as the new black, and TV reality characters to start pointing at advertised “sales prices” while jeering into the camera. When the nightly business commentators start using the word “subdued” to describe our lack of enthusiasm for parting with our money come years’ end, we’ll know the shopping season is going to be a disaster.

The leaves are falling here on the mountain, but this year their burst of color has been muted. Long-term drought, atmospheric grunge from the LA fires, a less-than-abundant harvest in the Central Valley; everything just seems depleted somehow— as overdrawn as our beleaguered checking accounts.

But as winter approaches, there is yet cause for celebration and cheer. Though the days grow short and the shadows linger, our numbers increase and our hearts grow full.

Muggy has a new baby girl. And she is a Libra.

Let the celebrations begin!

by ahansen

Post off-topic ideas, links and Craigslist finds here. Please visit the HBB Forum.

Post off-topic ideas, links and Craigslist finds here. Please visit the HBB Forum.

Recently, a HBB discussion turned to which Florida newspapers had done a good job of covering the housing bubble while it was building or at the peak. I thought it would be a timely project for this blogs readers to review the subject. On this thread, I am asking for nominations for the following areas in these catagories; the 3 best at housing bubble reporting, the 3 worst, and the best single journalist. Let’s also rate best/worst market observer for each area, which could be appraisers, economists, UHS or analysts.

Feel free to expand on the details and include links if possible. I am also asking for knowledgeable local readers to join a small committee (online) to rate the nominees and then we’ll put up a reader poll and see how those match up. Mainstream media only, please; this can include print newspapers, magazines, and online news services like the AP.

The areas of the US to be rated:

Northeast.

Mid-Atlantic.

Southeast, excluding Florida.

Florida.

Midwest.

Southwest, excluding California.

Southern California.

Northern California.

The Pacific-Northwest.

National/International publications.

I’ll forward this thread over the next few days and we’ll start the ratings on individual threads next week. - Ben

The Glendale News Press reports from California. “Local home foreclosure rates have continued to rise, led by a baffling eight-fold jump in La Crescenta filings during the month of September, compared with a year ago, according to experts and a report prepared for the Glendale News-Press by RealtyTrac. With La Crescenta’s unemployment rate of 5.9% well below Glendale’s 11.1% and Burbank’s 10.4%, the figures were surprising, said Paul Habibi, professor of real estate at the UCLA Anderson School of Management.”

“‘I would expect that in a Palmdale-Lancaster kind of community,’ Habibi said. ‘That’s puzzling.’”

“The rise in La Crescenta foreclosure rates was likely a result of residents struggling to pay increasingly unmanageable mortgage payments during the recession, said Marcella Theisman, an agent in La Crescenta. ‘When they bought, they bought at the top of the market, and when the property values fall, either one can’t afford it, or they can’t see the sense in trying to pay more than the property is now worth,’ she said.”

“Buyers are eagerly seeking out low-priced properties that may have been in foreclosure, but they are frequently disappointed by the low number of homes on the market, said Dan Soderstrom, a real estate agent in Burbank. Much of that problem is because banks have not followed through on foreclosures and listed properties for sale, Soderstrom said.”

“The short supply of homes and the growing demand that has been fueled by a federal $8,000 tax credit for first-time home buyers has compounded the problem, he said. ‘I’ve got nothing to show buyers,’ he said.”

The Wall Street Journal. “When do borrowers walk away from their homes? More often, it’s when the bank can’t go after them. The research, by Andra Ghent of Baruch College and Marianna Kudlyak of the Richmond Fed, raises the possibility that strategic defaults may be more of a problem than believed by some analysts and economists. The authors conclude that ‘a non-negligible portion of U.S. mortgage default is in fact strategic.’ It’s not that borrowers can’t pay—they just decide it’s no long worth it.”

“A commonly cited 2008 paper by the Boston Fed downplayed the effect of negative equity on foreclosures and concluded that borrowers don’t usually walk away from properties just because they’re upside-down. But the Richmond paper notes that the study may not be applicable nationally because it looked only at early 1990s defaults in Massachusetts, a recourse state.”

“The researchers note that just 11 states, accounting for one-quarter of the nation’s housing stock, could be considered non-recourse. Still, two of those are states that have some of the biggest negative equity and foreclosure problems: California and Arizona.”

The Christian Science Monitor. “California, the state which has led the nation in home foreclosures, has finally seen a significant drop in the number of mortgage defaults and house repossessions. But many economists say the trend is less about improved economic conditions than about banks holding off on foreclosure or renegotiating loan agreements.”

“‘It’s not out of the goodness of their hearts,’ says Andrew LePage, DataQuick senior analyst. ‘Foreclosures are expensive and the more homes you dump on the market, the more you drive down prices and it becomes a vicious cycle.’”

“A state moratorium on foreclosures was in effect through most of the last quarter, and has just been lifted. ‘Now that the moratorium has been lifted, there should be a tsunami of them [foreclosures] coming shortly,’ says Chuck Cochran, a real estate assessor based in the San Fernando Valley. ‘A lot of properties are due to hit the market, which could push prices down another notch.’”

“‘There are lots of unknowns at the moment, especially in California,’ says Jed Kolko, real estate specialist for the California Public Policy Institute. ‘Among them is that there is no way to know if what the government is doing to help people renegotiate more comfortable mortgages will have a permanent effect or only a delaying one.’”

“The DataQuick study released this week showed that while most foreclosure activity was still concentrated in affordable inland communities, the foreclosure problem has continued to slowly migrate into more expensive areas. Default notices are rising fastest in the affluent counties of the Bay Area – San Francisco (up 72 percent over a year ago), San Mateo (up 58.5 percent), and Marin (up 65.9 percent).”

The San Francisco Chronicle. “The Bay Area locales where homes sell the most above asking price tend to be relatively affordable, according to a report from ZipRealty released Friday. The highest offers (measured by sales price-to-list price ratio) were clocked in the East Bay’s 94608 ZIP code, which includes Emeryville and part of Oakland. Homes there on average sold for 105.65 percent of the asking price in the third quarter, said ZipRealty. “The homes are in the $200,000 to $300,000 price range. I’ve been writing offers there like nobody’s business and getting beat out, often by cash offers.”

All-cash offers are the telltale mark of investors. David Kerr, a Zip Realtor who specializes in the East Bay…said…’I've seen the same house picked up at a (foreclosure) auction go back on the market and sell higher than the highest comparable sale in that area because it’s been rehabbed.’”

“The third ‘hottest’ Bay Area ZIP code, 94606 in central Oakland, is similarly affordable with a median price of $279,000, he said. Of both ZIP codes, Kerr said: ‘Homes here were selling in the $400,000s and $500,000s at the height of the market and now you’re picking them up in the $200,000s and $300,000s.’”

The Monterey County Herald. “By the time real estate agent Becky Jones drove up to a foreclosed home in Seaside on Tuesday, there wasn’t much left except the walls. ‘It was absolutely stripped,’ said Jones. Most of the wood floor was removed. There were no light fixtures, no appliances. Even the kitchen sink was gone.’ Jones didn’t have any problem getting in — the doors to the home were gone, too. A retaining wall in back of the five-year-old home was gone as well.”

“‘I’ve never seen anything like it,’ said Jones, adding that she has ‘handled foreclosures for years.’”

“Seaside acting Deputy Chief Judy Stradan said…reports of former tenants or owners taking property from foreclosed homes are not uncommon. ‘It’s happening all over, city after city,’ she said.”

The North County Times. “Dan and Colleen Spence…waited nine months for Bank of America to approve their bid on a Temecula home. When the letter came, the bank wanted to close on the property in 10 days. No problem for the Spences, who sent $2,000 in ‘earnest money,’ had the home inspected, and then —- nothing. ‘We’ve had silence for a month,’ Dan Spence said. ‘We don’t know what’s going on.’”

“Frustration can be heard in Spence’s voice, and he’s far from alone: Buyers and real estate agents say short-sale purchases have become a crapshoot of delays, reversals and occasionally, the jackpot of homeownership. Real estate agent Jeannine LaChance had a recent deal fall through. The bank had approved her buyer, but then a new buyer offered a higher bid. When the new, high bidder walked away, the bank returned to LaChance’s client, but demanded more money.”

“‘They think the market’s going up,’ she said. ‘I think they’re crazy.’”

The Press Enterprise. “Sales of existing U.S. homes surged a record 9.4 percent in September as Americans rushed to take advantage of a tax credit for first-time buyers before it expires next month. Marty Rodriguez, owner of a real estate brokerage east of Los Angeles, said half of her transactions last month were low-priced foreclosures and short sales. ‘You have so many buyers in that lower price range,’ she said. ‘Sometimes my agents are writing five offers for one buyer on different properties just trying to get one property — and not getting accepted. It’s a little crazy.’”

“Aldo Martin, 28, of Covina had to put offers on 16 houses before having one accepted this week. ‘We’d go look at eight houses and if we liked five of them, make offers,’ said Martin, a sales supervisor. ‘Your odds are better. We got aggressive.’”

“The Realtors’ association and the National Association of Home Builders are lobbying to extend the first-time homebuyers credit on concerns that demand will wane after it lapses. ‘The work of stabilizing the housing market won’t be done’ when the credit expires next month, Senate Banking Committee Chairman Christopher Dodd said during a panel hearing. ‘We still need to use every tool at our disposal to fix this problem.’”

“However, some analysts say the tax credit may not be as critical to the housing market as real estate agents suggest. The Realtors association has ‘an incentive to talk up the effects of the credit as it is urging Congress to extend it, and it therefore may be exaggerating the credit’s effects,’ wrote Nomura Securities economist Zach Pandl.”

“One potential roadblock to an extension also emerged this week. There are concerns that some of the 1.5 million applications for the tax credit are fraudulent. The Treasury Department’s inspector general for taxes questioned the legitimacy of some 100,000 claims for the credit, potentially including some illegal immigrants and 580 people under 18.”

The Desert Sun. “When will there be true economic recovery in the Coachella Valley? Try 2012. And that’s only if everything’s done right. That’s the prediction from John Husing, an economist who has studied the Riverside and San Bernardino counties region for more than 40 years, and recently that of the Coachella Valley.”

“During his 2009 Coachella Valley economic report in Indian Wells on Friday, Husing used one word to express what the valley’s been through: ‘Arrggh!’”

“Fueling that frustration, Husing said, is the fact that the valley has suffered unprecedented job losses in the recession. ‘We’ve lost 130,000 jobs’ in this area and in two surrounding counties, he said. The unemployment rate has topped 14 percent, and is rising to levels close to those recorded in Detroit. ‘That’s not pretty,’ Husing said. ‘It’s a rate that is somewhat comparable to what was going on in the middle years of the Great Depression.’”

“The good news is the valley’s median home prices likely hit the bottom in the third quarter, he said. Looking ahead, Husing said a return to economic prosperity will require diversification of the economy and a housing market recovery.”

“‘The last major shift in the California economy in this last cycle was housing,’ Husing said, citing some $10.6 billion in lost building permit activity, $8.3billion of it being residential. To Husing, that’s lopped $21.2 billion out of the region’s $110 billion economy. ‘That means one of the targets you have to worry about is how to get that (construction) sector back to work,’ he said.”

“Husing’s 2009 report on the economy said he’s seen pent-up demand for homes, mostly because of high affordability. The valley’s affordability level, once at 10 percent, is up to 63 percent. Sales volume is up, and the median prices are back to 2002 levels.”

“Still, Husing said one yet-to-be-resolved piece of the valley’s economic puzzle is that a portion of the 35,498 homes that were sold in the valley are in danger of being worth less now than what is owed. ‘How many homes are upside down’ and in danger of default that have not yet shown up? Husing said. ‘That’s a huge piece of the challenge.’”

From Bloomberg. “The California Public Employees’ Retirement System, the biggest U.S. pension fund, and real estate adviser MacFarlane Partners severed ties as the fund reviews the performance of its investment managers. Calpers put more than $1 billion in the urban program. MacFarlane also helped the pension fund pay $970 million in cash and property to Lennar Corp. for a stake in LandSource Communities Development LLC in January 2007. The 15,000-acre (6,000-hectare) tract north of Los Angeles, known as Newhall Ranch, filed for Chapter 11 bankruptcy protection in June 2008 after failing to restructure debt.”

“‘Large institutions increased allocations during a period when real estate prices were frothy and along the way got involved in riskier investments, whether it was land or opportunistic funds,’ Craig Leupold, president of real estate consultants Green Street Advisors in Newport Beach, California, said in an interview.”

The Manteca Bulletin. “Is the era of the McMansion in Manteca giving way to a small is beautiful period? The Manteca City Council put its official blessing Tuesday on Winters Colonial Estates – a new neighborhood dubbed as workforce housing a stone’s throw or two from where the city’s first McMansions went up along the perimeter of Woodward Park.”

“The project on five acres is a radical departure for residential density south of the Highway120 Bypass. Instead of four homes per ace that is typical of subdivisions south of the Bypass, there are eight homes per acre – the maximum allowed under the city’s zoning rules. The typical pre-McMansion Era Manteca neighborhood has 6,000-square-foot lots or five homes per arce.”

“Those five acres will yield 40 homes with five different house plans ranging from 1,151 to 1,466 square feet with a mixture of single and two-story layouts. Mayor Willie Weatherford, in approving the project, noted ‘we need smaller homes in Manteca especially in this economy.’”

The Recordnet. “Higgins Ranch, a 505-acre property near Camache Reservoir and once slated for development, is going on the auction block for the second time at less than ranchland prices. The bank-owned property was offered this past spring but failed to receive any bids at the $1,175,000 minimum price. The reserve price is $750,000, said John Rosenthal, president of the Portland, Ore., brokerage conducting the auction.”

“‘The banks have gotten realistic. They’ve dropped their prices,’ Rosenthal said.”

“The cut in price reflects today’s weak real estate market. ‘I don’t care what you do today; people expect a discount,’ he said.”

“It’s hard to make a comparison because of relatively few sales in the region in a volatile real estate market, but the most recent ranchland sales going back to last year range from $1,650 to more than $3,000 an acre. At the auction reserve price, the Higgins property is $1,500 an acre. It is leased for grazing at $841 a month. The property with frontage on Highway 12 near unincorporated Wallace is affordable for pasture land, its current use, said Randal Edwards, an agricultural appraiser in Hilmar. ‘That’s a below-market price,’ he said.”"

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