HBB Rates The Media: Mid-Atlantic
The HBB continues its look at the media and the housing bubble. This time, the mid-Atlantic states.
The good:
The Morning Call in Pennsylvania, April 2005: “It might be reasonable to suppose that they aren’t individual bubbles but rather one mega-bubble, the totality of the economic and financial world we live in. Some Wall Street veterans say the global bond and mortgage markets may constitute the scariest bubble of all, as investors and lenders have fallen over themselves to extend credit to companies and individuals at generously low rates of interest.”
“But true bubbles on the scale of dot-coms in the late 1990s, or Japanese stocks in 1988-89, or tulip bulbs in 1636-40, are relative rarities.”
“Jeremy Grantham said: The Federal Reserve, by cutting interest rates to generational lows in recent years, inflated a new crop of financial market bubbles by giving investors the wherewithal to aggressively bid up the values of bonds, real estate and (once again) stocks, he said. That’s what easy money will do, and that’s what it did.”
May 2005. “Average local home prices shot up 12 percent in the first three months of the year, proof that the predicted cooling of the real estate market hasn’t arrived. That 12 percent uptick is ahead of the solid growth the region saw in the same period last year, when prices for existing homes rose 9 percent.”
“Housing prices are rising faster than Lehigh Valley residents’ wages, largely because of a steady influx of new homebuyers with higher incomes from costlier areas such as New York and New Jersey. ‘What we see is the local people not being able to make the move,’ said Sam Ruta, of Coldwell Banker. Ruta said he held an open house last fall for a home that ultimately sold for $250,000. Nearly all the people who attended the open house hailed from New York and New Jersey. But one Lehigh Valley man came with his young son. ‘He looked around and said ‘I can’t afford this house and I am from Palmer Township.’”
The Philadelphia Inquirer, March 2005: “For high-rate subprime loans..11.94 percent foreclosed each year..Two of every five mortgages made in Philadelphia by high-interest “subprime” lenders in 1998 and 1999 had resulted in defaults and foreclosures by 2003.”
“Traditionally, the fear of losses kept banks from lending to people with bad credit. Since big banks have cut back on mortgage loans..Wall Street investors have stepped in, there is less risk for loan originators and brokers, because loans are quickly sold to other investors.”
From Philly.com, April 2005: “American Business Financial Services Inc., a leading subprime lender announced, “it was abandoning its bid to resume operations under U.S. Bankruptcy Court protection and would lay off its 820 employees.”
“The company’s demise should bring a speedier resolution for the mostly elderly investors who bought unsecured investment notes from the company through newspaper advertisements. They are now owed $622 million. But note holders are expected to recover only pennies on the dollar.”
From DelmarvaNow, May 2005: “‘A concern has been [that] commercial usages, restaurants and the like , have been replaced with condo projects,’ said Mayor James N. Mathias Jr.”
“Geoffrey Robbins, a dentist would have kept Atlantic Cosmetic and Family Dentistry in Ocean City, but when he was ready to expand, he couldn’t afford to buy additional land for parking. So he moved his practice to West Ocean City in January. ‘You can’t pay a million dollars for a parking lot,’ Robbins said. ‘We were faced with either staying where we were and not doing what we had wanted to do’ or moving out of town.”
“Norman Gilden said, ‘With land and property, what is the worst thing you’ll have to do? You’ll have to sell it, and you’re not going to sell it for a loss.’”
“Most consumers are aware of the record building activity in recent years from Lewes to Fenwick Island. “‘It grew so fast, it just blew up,’ said Kitty Harmon, manager of the Coffee Mill in Rehoboth Beach. ‘Every day, I ride up and down [Del. 1], and if I blink I miss a new condo. Prices are going to come down.’”
The Baltimore Sun, March 2005: “The city has a love-hate relationship with investors, though. Speculation during the real estate boom of the 1980s - particularly from out-of-town buyers who thought anything cheap was a deal - helped push the city into a real estate slump from which it only recently recovered.”
“Low-income residents making their first foray out of renting were victimized. So were other investors, people hoping to be landlords. But Baltimore officials say it’s different now.”
The Washington Post, May 2005: “At issue is the fast-growing market for home equity lending, which rose to $881 billion at the end of 2004 from $492 billion at the end of 2000, up 79 percent. Overall mortgage indebtedness nationwide climbed 57 percent, to $7.54 trillion at the end of 2004 from $4.8 trillion at the end of 2000.”
“Veteran banking consultant Bert Ely said the warning comes at a time when a growing number of industry observers think the real estate price appreciation bubble ‘can’t expand further.’ He added that whenever home prices rise for a long time, ’some lenders go overboard.’”
“Some lenders do not see a looming problem.’As long as the housing bubble doesn’t burst, home equity lines should remain strong and remain safe,’ said Scott Stern, chief executive of Lenders One.”
“The government warning was issued on the same day that the National Association of Realtors called for increased consumer education on the dangers of what the trade group called ‘toxic’ loans with predatory terms that hurt homeowners’. The group said that banking regulators were doing little to protect homeowners. ‘Consumers are also at risk, and the possibility exists that they could lose their homes’ to foreclosure, said JoAnne Poole, president of the Maryland Association of Realtors.”
April 2005: “‘In Real Estate Fever, More Signs of Sickness,’ in the Washington post. “Jennifer Tyler isn’t worried. She just took out a 10-year, interest-only loan to keep the monthly payments affordable. ‘Anything can happen in 10 years, I can move, I can re-finance. Anyway, the house will almost certainly appreciate, too.’”
The bad:
The Loudoun Times Mirror, April 2005: “Three years ago Greg and Jessica Furr paid $230,000 for a single-family home. They recently sold it for $445,000, pocketing a $215,000 profit. The Furrs and their two young children moved into a new, four-bedroom, brick-and-vinyl-sided home. The couple bought the place for the pre-construction price of $380,000.”
“We plan on selling this in two or three years..They say we’ll get $750,000. It’s hard to believe. To make 80 or 100 grand on a house is one thing. To double the value is kind of absolutely mind-boggling.”
“Mr. Furr (is) a 34-year-old general superintendent for a City of Fairfax-based concrete company. Mrs. Furr has since returned to work as a loan officer for a mortgage company. The couple also has a place on the Northern Neck, where they spend most weekends.”
The Washington Post, May 2005: “Tom Regnell has refinanced five times since he bought his house. When he refinanced this last time, he finally took out some cash; enough to buy a piece of property near the Homestead resort and start building a second home.”
“Ileann Jimenez-Sepulveda and her husband bought four years ago. They used their growing equity to buy another house three blocks away and renovate it to sell it. Then they bought a house in South America, and soon they’ll close on a large single-family home in the upscale Crestwood neighborhood. In the meantime, Jimenez-Sepulveda, who had worked in the high-tech industry, quit her job to join her husband in the real estate business; he’s a loan broker, she became an agent. Now they encourage their clients to use the equity in their homes to buy investment properties.”
“‘It’s very easy, it’s very tangible for people to understand because they see their neighbors doing it; taking the money out, buying something else, or investing in starting a restaurant,’ she said. ‘It’s exciting to see people recognizing it and running with it.’ She argues that real estate assets are bound to increase in value over the years.”
“Nick Koufos, an attorney for the SEC, is 36 and has three children. He recently did a cash-out refinance on his Silver Spring home to build a house in Pennsylvania, to which he plans to retire someday. ‘I think it’s better to get it done sooner rather than later,’ he said. ‘I don’t see how I could lose money.’”
“‘Certainly as things retreat, you’ll have some households that find themselves with two sets of loans, one on their equity line and one on their primary residence, as well as their new property investment, and that could be a lot,’ said David A. Lereah of the National Realtors Assoc.. ‘Certainly we’re in a new world today.’”
Other market observers, May 2005: “It feels as if Playboy’s Playmate of the Month for May is speaking for the entire country. Fort Lauderdale native Jamie Westenhiser, 23, told the magazine recently that she is ditching her modeling career to take up real estate investing. In the magazine’s May issue, Westenhiser poses, leaning on a computer desk next to a stack of books with titles including ‘All About Escrow’ and ‘Real Estate Principles.’ In her playmate data sheet, she writes that her ambition in life is to have a ’successful career in real estate.’”
“‘Everybody can’t sell all together,’ economist John Silvia said. ‘Somebody has to be buying. There’s absolutely a chance that a whole bunch of people will try to sell at the same time. The game can change very, very quickly.’”
”I’d want to sell while it’s still a seller’s market,’ said Kitty Bernard, an agent in Reston who has teamed up with several colleagues to invest. ‘I wouldn’t want to wait until it reverted completely to a buyer’s market.’”
