The Housing Bubble

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The News Tribune reports from Washington. “Against the backdrop of tough hearings on the collapse of Washington Mutual in the largest bank failure in U.S. history, Sen. Maria Cantwell says there are signs that Congress and the Obama administration may finally be getting serious about Wall Street reforms. The Washington state Democrat’s comments came as the Capitol Hill fight over an overhaul of financial system regulations heated up with Democratic congressional leaders and the White House saying they were prepared to act with or without Republican support.”

“For months, Cantwell has been pressing to include stringent regulation of the currently unregulated $600 trillion derivatives markets. Cantwell has called the trading in derivatives ‘casino capitalism’ and warned it could lead to another economic bubble that will burst unless reined in. The hearings on Washington Mutual were timed to put pressure on Congress to act on a financial regulations overhaul. The hearings offered an inside look at a 118-year-old Seattle-based thrift that jettisoned its ‘plain vanilla’ approach to home mortgages for a high-flying ‘higher risk lending strategy,’ which produced shaky mortgages that were fed into the financial system like a ‘polluter dumping toxic substances into a river.’”

“Though senior management was aware of the problems, it did not to stop them and, in fact, offered incentives to loan officers who increased their volumes, said Sen. Carl Levin, D-Mich., chairman of the Senate Permanent Subcommittee of Investigations. At the same time, WaMu was packaging its risky mortgages and offering them to Wall Street investment firms, who in turn offered them to investors. The investment firms were also playing the derivatives markets with their mortgage securities. ‘Mortgages began to be produced for Wall Street rather than Main Street,’ Levin said, adding that WaMu and other lenders created a ‘mortgage time bomb.’”

“Last week’s hearing was just the first as the investigations subcommittee will look at the role of the regulators and rating agencies in the WaMu collapse. ‘It was a man-made economic assault,’ Levin said. ‘People did it. Extreme greed was the driving force. And it will happen again unless we change the rules.’”

“Without the changes, Cantwell said another financial crisis could loom. ‘Who knows what the next thing is they will cook up?’ Cantwell said of Wall Street.”

The Idaho Statesman. “The number of Idaho homes repossessed, the final stage of the foreclosure process, reached 1,234 during the quarter. In the same quarter of 2009, 198 homes were repossessed. Foreclosures have been suppressed over the past year by government and industry mortgage relief programs to save keep people in their homes. But as those efforts have faltered, more borrowers are expected to lose their homes through foreclosure or short sales.”

“Locally, 1 in 11 mortgages is 90 days or more delinquent.”

The Jackson Hole News & Guide in Wyoming. “Teton County property owners got good and bad news this week. The good news: Property tax estimates are going down. The bad news: Taxes are going down because real estate prices decreased in Jackson Hole in 2009, with some declines hitting more than 30 percent.”

“Most of the 12,000 notices told owners their property is worth only about what it would have fetched in 2006 or 2007. That’s a far cry from just three years ago, when double-digit increases pinched many property owners and sent tax bills soaring. ‘Assessed value went down for most people,’ Assessor Cathy Toolson said. ‘Condos probably went down the most. From what I’m seeing, it’s down to just about 2007 assessed valued, which reflects sales from 2006. I would say it’s the 2006 market.’”

“For example, a home in Polo Ranches was valued at $861,158 in 2006 and peaked at more than $1.1 million in 2008. In 2010, the assessor valued it at $863,795. Similarly, a Jackson condo was valued at $439,463 in 2006 and hit its peak valuation at $651,745 in 2008. The assessor valued it at $463,526 for 2010.”

“Some of the biggest surprises for Toolson were assessments on property in Rafter J and Cottonwood. ‘I think they’ve gone up every year consistently,’ Toolson said of the two neighborhoods that house primarily valley workers and families. ‘This year, in one year, it just went back down. It was surprising because those are the areas that have gotten an increase every year for the past several years.’”

The Mail Tribune in Oregon. “In what could be a good sign for the local real estate market, the number of houses for sale in Jackson County on April 1 declined 8.3 percent from a year ago. ‘There was a fear that foreclosures and distressed properties — which remain a large part of the market — were coming on at a pace buyers couldn’t keep up with,’ said Colin Mullane, an agent in Ashland. ‘It’s nice to see that happening so that conventional sellers are making up about 50 percent of the houses for sale.’”

“The in-migration from California fueled much of the local housing boom up into 2006, but even though the Rogue Valley might be a desirable location financial conditions have changed. ‘We had an influx of people because of the relative affordability,’ Mullane said. ‘They could take the equity from their houses and say I can live in a house that’s just as nice in Ashland or Medford for half the cost. But now there’s not the confidence they can just leave their job in San Francisco when they are not sure they can find a job in Ashland or Medford.’”

“Home prices in Medford have dropped to prices not seen in nearly two decades, deflated by a sluggish economy and a high rate of foreclosures. ‘We haven’t seen this in years,’ said Jan Esquivel, a broker. She said she is working with two clients who are looking for something only in the sub-$90,000 range.”

“The downward trend in real estate prices isn’t confined to low-end houses. Esquivel said homes that were selling in the range of $160 to $180 per square foot range are now sometimes go for $80 to $85 a square foot.”

“For $43,300, you’d hardly expect to be able to buy a house. Paul Grout paid that much for a two-bedroom, one bath fixer-upper on Jeanette Drive in west Medford on April 8. Billie Cain, who lives next to the $43,300 house, said she wasn’t surprised to learn the house sold for so little. She pointed out that it isn’t the best neighborhood in the world, and the previous owners had difficulties. ‘I think it was that cheap because it was repossessed,’ said Cain.”

“Another house a few doors down is listed at $74,900. Even though Cain believes her own home is virtually valueless because of fire damage, she’s happy prices are going down because it will make houses more affordable for young families.”

The Gresham Outlook in Oregon. “This is a great time to buy a home. Really, it is. The recession has produced a slowdown in home sales, resulting in a glutted market and increasingly desperate sellers who are cutting their prices. Interest rates remain near historic lows and builders are offering incentives to potential buyers. And until the end of the month, the federal government is also offering tax credits to both first-time and repeat homebuyers.”

“Realtor Lyn Stevens, who has a Gresham Re/Max office, is seeing and hearing from a lot of first-time homebuyers trying to take advantage of the deal before it ends. ‘I’m seeing more of the first-time buyer,’ she says. ‘If you’re gonna do it, you need to do it now. The general feeling is they’re not going to extend it.’”

“Most of the activity she and fellow real estate agents are seeing is in houses of a certain value. ‘We see a lot of movement in a certain price range,’ she says. ‘There’s more movement with first-time buyers — more there than with houses at $250,000 and above. Those are taking awhile’ to sell. ‘The thing right now is there’s so many foreclosures and short sales (selling for less than what is owed on a mortgage),’ she adds. ‘And I don’t see the banks helping out much.’”

“A Regional MLS report from February indicates it would take, assuming no additional houses were listed, nearly 13 months to clear the current inventory in the Portland area at the current rate of sale. ‘New houses being built makes no sense at the moment,’ says Carter Hardenbergh, managing broker with Blue Bear Lending Company in Gresham. ‘There are more foreclosures coming.’”

“Hardenbergh says the idea that unqualified homebuyers should receive ‘help’ is at the root of the problem. ‘We had a boom. Now we’re having a bust,’ he says, matter-of-factly. ‘Tax credits and other government tweaks only delay the inevitable, he explains. ‘There are still too many people living in homes that should not be. The longer the government is involved, the longer it will take the marketplace to get to wherever the marketplace should be,’ he says. ‘The longer that takes, the longer it will take for a recovery to occur.’”

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