The Housing Bubble

The Times Tribune reports from Pennsylvania. “While data may show the recession has ended, the overwhelming consensus among participants in this year’s Economic Forum is that it still feels like a recession in Northeast Pennsylvania. Misericordia University economics professor John Sumansky, Ph.D: For me, when I look at this recession, what’s clear to me, anyway, is that not all recessions are the same, and we’re not immune from what goes on in the world around us…This size unemployment rate, and we’re talking about nine, ten percent, a lot of our young people have never seen those kinds of unemployment rates before. What’s different about this one I think is that this particular recession was centered around those kinds of factors that affected people’s wealth, how wealthy did you think you were.”

“And by wealth I mean people’s homes and their 401(k)s…And when people’s homes start losing value, when their 401(k)s start losing value, they felt poorer even if they had jobs. And this cut across the heart of all of America because the home was the symbol that I have arrived, I’m wealthy, that’s my asset. Its price has continued to go for up as long as we can remember until just a couple of years ago. And that all turned around.”

“So if we’re looking for recovery, we’ve got to get people feeling wealthy again. So those home prices have to come back.”

The Philladelphia Inquirer in Pennsylvania. “At 1 p.m. May 15, the nine unsold units at what is known today as Cu257 will be auctioned. The minimum bid for the two penthouses, once listed at $1.2 million each, will be $200,000. The minimum bid for the seven remaining units, with list prices ranging from $698,400 to $871,255, will be $95,000. The seller is a subsidiary of the lender, Wilmington Saving Fund Society, designated to complete and sell the building after it was returned to the bank rather than go through foreclosure and sheriff’s sale.”

“Realtor Mark Wade of Prudential Fox & Roach, who handles Center City condos, said the auction offered the chance for a good deal. ‘At the price point where some of these units may eventually sell, it is hard to highlight any negatives . . . in terms of locale, views, or the fact that the property had problems selling when first offered to the general public,’ Wade said. ‘It is not too amazing what a drastic reduction in sale price can overcome.’”

From WBAL in Maryland. “According to new reports, home foreclosures in Maryland have gone up 80 percent compared to this time last April. To help those in trouble, financial experts, mortgage lenders and housing counselors met with folks in danger of losing their homes at Overlea High School. The volunteers didn’t just help people with foreclosure issues, but they also discussed how to deal with a decrease in value of a home.”

“‘We purchased our house at a real high price and it went down really quick,’ workshop attendee Veronica said. ‘So we want to modify the loan and try and sell it see what our options are.’”

The Capital in Maryland. “Every month, our multiple list system summarizes home sale data for each county that is served by the organization. Since we’re now through the first quarter of 2010, it’s a good time to check in on the numbers and see if we’re coming out of the tunnel yet with respect to our local housing market.”

“Anne Arundel County experienced a housing bubble, just like everywhere. However, the bubble locally was a little different than what we saw nationally. Like politics, all real estate is local, and the nature of the market in our county is evidence of that. This is a very desirable place to live, and our adjacency to Washington, D.C., with our ever-expanding government, has mitigated our exposure to overall weakness in the housing market.”

“Like everywhere, home prices have gone down in the county, but they haven’t gone down as much as the national averages. Plus, the last decade in the county was a period of tremendous growth for home prices, far out-pacing the rest of the country. For example, in 2000, the median home price in our county was 13% higher than home prices nationally. By 2005, local housing prices were 47% above the rest of the U.S., and at the end of 2009, a house here was 71% more expensive than the U.S. average.”

“Some might say this means the bubble here has yet to fully deflate. We don’t think that’s the case. In Anne Arundel County, we have continued strong demand for housing because our unemployment rates are far lower than the nation as a whole and we have very high average salaries.”

Hometown GlenBurnie in Maryland. “Steve Hurst knows what it takes to grade a construction site and to remove trees and brush so that a piece of land is ready to support the infrastructure of a new building. But in November 2008, he was laid off from the local company he had served for many years, along with a mechanic and an equipment operator. Today, he’s one of thousands of unemployed county workers in the construction trades he’s still hunting for work.”

“Lending has virtually evaporated for developers and the residential and commercial real estate have been stagnant for months. At 45 years old, with a wife and two teenage boys at home, Hurst has practically given up on landing another job in the field he knows best. After losing track of the number of jobs he’s applied for, he’s now taking Web technology courses at Anne Arundel Community College. He’s applying for retail positions at Best Buy and Kohl’s - anything to earn him a paycheck at this point, he said.”

“‘It’s not for not trying. I’ve applied for construction jobs, I’ve applied for jobs everywhere,’ Hurt said. ‘I wasn’t comfortable with the construction industry in 2006, when prices were dropping. It has really gotten dog-eat-dog, and so many people (are) going after jobs, trying to get work.’”

The Baltimore Sun in Maryland. “What happens in D.C. matters here. Washington workers were part of the rise and fall of the Baltimore-area housing market, in addition to the lax lending and speculation that gripped the nation. D.C. prices skyrocketed before Baltimore’s. As the cost difference between the District and our metro area jumped from $90,000 on average in 2000 to nearly $240,000 in 2005, more priced-out Washingtonians bought in Baltimore and its suburbs, pushing up prices here.”

“Then the bust hit D.C. and rippled north. Home sales in the Baltimore metro area these days are half as numerous as they were at the peak. Price reductions in Washington that put homes in reach of more people aren’t helping the Baltimore market.”

“From the National Security Agency at Fort Meade to the Social Security Administration in Woodlawn, the federal government has an outsized effect on the Baltimore area. Uncle Sam paid $12 billion here to contractors and employees in 2008, which works out to twice as much per capita as the national average. Johns Hopkins University, a major local employer, gets more federal research-and-development dollars than any other university or college in the country. And the D.C. powers-that-be are relocating thousands of jobs from out-of-state military bases to Harford and Anne Arundel counties this year and next. ‘Baltimore, whether we like it or not, has become an adjunct of the federal government,’ said Richard P. Clinch, director of economic research at the University of Baltimore’s Jacob France Institute. ‘When the government sneezes, we catch the flu.’”

“Clinch sees impending contagion. The federal government has spent more than it collected in taxes for the last 18 months in a row — a record-long stretch of budget deficits. The national debt can’t keep growing at that rate, he said, and any change in spending will affect communities across Maryland.”

The Washington Post. “Since the collapse of the housing market, home buyers trying to a secure mortgage of more than $729,750 have faced higher interest rates and tough new standards to even qualify for a loan. Now the market for these ‘jumbo’ loans is starting to thaw. The home-sales market remains depressed by historic standards, but it has shown signs of improvement, said Lawrence Yun, economist for the National Association of Realtors. Sales of homes worth $750,000 to $1 million increased 39.6 percent in February compared with the same period last year, according to NAR data. Sales of homes worth $1 million or more rose 35.5 percent. But jumbo mortgages still made up just 2 percent of the lending market.”

“‘The upper end of the market is starting to move. It was completely frozen last year,’ Yun said.”

“It has also started to improve in the Washington region, real estate agents said. During the first three months of the year, 146 homes sold for $800,000 or more in Montgomery County, up about 22 percent compared with the same period last year, according to data from the Metropolitan Regional Information Systems. In close-in Northern Virginia, sales above $800,000 were up more than 50 percent from January through March. They were up 20 percent in the District.”

“For some local buyers, a shortage of homes on the market is a more significant problem than obtaining a loan, said Jeff Brier, a principal with the Martin & Jeff Group of Coldwell Banker in the District. A few weeks ago, Brier said, a client offered more than the $2.5 million asking price for a home in the District’s Kalorama neighborhood but still lost out to another buyer. Two bidders also emerged for another Kalorama home listed at $1.55 million last year, Brier said. His client was outbid after the home had been on the market for just eight days. The client offered the seller an additional $100,000 to reconsider — to no avail, he said.”

“‘If it’s a nice house, and it’s priced well, it goes,’ Brier said. ‘Well priced doesn’t mean give your house away. It just means a fair market price.’”

“Citigroup is among the lenders pushing more deeply into the jumbo market. In March, it cut the average interest rate for a jumbo loan from about 7 percent to less than 6 percent for customers who apply through one of its bank branches. The company expects to double its business in the jumbo market this year. ‘We see that that part of the market has been underserved. We believe that it is something we need to get back into in a big way,’ said Sanjiv Das, chief executive of CitiMortgage.”

“Demand for jumbo loans has already picked up in California and New York, two traditionally high-priced markets, he said. ‘It looks like, at the higher end, prices have dropped as much as they needed to, and there is some sense of stabilization in a much broader swath of the country as opposed to six months ago,’ Das said. ‘I am much more confident than I was six months ago that there is a stabilization and that it will stay stable.’”

The News Journal in Delaware. “Home resales got a solid boost from warmer weather and a scramble to take advantage of tax breaks in March, even as foreclosures and sheriff’s sales helped push prices even lower. The falling prices continue to be driven partly by abnormal buyer-seller dynamics, said Cynthia Witt, co-owner of Woodburn Realty in Dover — about a third of the quarterly sales in Kent were sheriff’s sales or bank-owned sales. But demand is clearly strengthening, partly because of tax breaks, partly because of melting snow, and partly because of impatience, Realtors said.”

“‘You can’t discount the emotional part of the marketplace,’ said Bob Weir, executive VP of the New Castle County Board of Realtors.”

“Foreclosures may also dictate the direction of the housing market after the tax incentive is over. Filings rose 16 percent in the first quarter from a year earlier and bank seizures reached a record, according to RealtyTrac.”

From ABC News Money. “When the Obamas arrive in Asheville, N.C., for a vacation, the first couple will find a festive tourist destination and a bustling business hub that, though hurt by the recession, has managed to keep its unemployment level below the national average. If only the rest of the state were so lucky.”

“Some 30 miles away from Asheville, in Waynesville, N.C., furniture store owner Tom Massie, 70, is recovering from his business’s toughest year in decades. For most of 2009, he said, 108-year-old Massie Furniture didn’t turn a profit and Massie had to dip into savings to make ends meet. Massie was able to keep all 12 of his full-time employees, but he watched as businesses around him shed workers and contributed to his home county’s 12.3 percent unemployment rate.”

“‘It’s by far the worst we’ve seen since the Depression that my father and grandfather went through,’ Massie said.”

“The economy in the western part of state, including Waynesville, has also been hurt by a decrease in the number of retirees who — thanks to the ills of the national housing market — are unable to sell their homes in other parts of the country and move to western North Carolina. When the ‘in-migration’ to the region was higher, those retirees helped stimulate both home building and commerce, as they shopped for everything from groceries to furniture to sustain their new lives, said Tony Plath, an associate professor of finance at the University of North Carolina-Charlotte.”

“The downturn of the nation’s banking sector, meanwhile, took a heavy toll on the economy and employment in Charlotte, which lost one of its biggest banks, Wachovia, after it was purchased by Wells Fargo. Charlotte, the home of Bank of America, is still considered the banking hub of the Southeast, but the city and its neighboring towns have lost some 10,000 jobs in the finance sector since 2007, according to data from the U.S. Bureau of Labor Statistics.”

“A portion of the jobs lost, experts say, were those of high-paid investment bankers — think multi-million dollar bonuses — whose incomes helped support other businesses. ‘When those people show up with all this disposable income and start buying houses and cars and go out for dinner, that has a multiplier effect,’ Plath said. Today, he said, ‘that’s gone.’”

The Citizen Times in North Carolina. “Here’s the TV show you probably won’t see anytime soon: “Wall Street Trauma.” It was high drama back in the fall of 2008. Here was the setup: The American economy comes staggering into the ER. Dr. Hank Paulson steps up for his close-up. His diagnosis: patient’s suffering from a complete seizure of the financial system. His prescription: ‘Give me history’s hugest injection of public money into the private market just to stabilize the patient, stat. We can ward off a Great Depression, if not a credit coma.’”

“It’s all a fantasy, of course. There were no doctors with a miracle cure for the economy, and hardly any cops on the beat, looking for the fingerprints at the financial crime scene. It’s not even clear that any laws were broken, an indication of how unregulated Wall Street had become. Congress has seen a line of top CEOs testifying that no one was really to blame. Even the former Federal Reserve Chairman, Allan Greenspan, at whose every word markets once trembled, said he was blindsided by the economic calamity coming.”

“But it wasn’t just nameless investors who got sideswiped. When the housing bubble finally burst, it left millions of homeowners at risk of foreclosure. In Western North Carolina, OnTrack Financial Education and Consulting is seeing more people who lost their jobs in the resulting Great Recession, and the means to pay regular mortgages, not just the credit-risky borrowers trapped in exploding subprime mortgages. OnTrack is likely to see even more foreclosure cases this year.”

The News Record in North Carolina. “News that economists think it may be time to declare an end to the recession comes as a reminder that economists don’t know squat. Outside the ivory tower, unemployment remains painfully high, the housing market is still broken, and a lot of the good news comes courtesy of unsustainable government intervention. If this is not a recession, I don’t want to see one. Welcome to my column about optimism.”

“So why start with the negatives? Because the negatives are real and persistent and need to be understood if optimism is going to have much meaning. In our short-attention-span, instant-gratification culture, we expect problems to vanish with the next news cycle, and we get frustrated when that doesn’t happen. But it’s not going to happen. As it turns out, ‘worst financial crisis since the ’30s’ and the ‘Great Recession’ were more than glib phrases, and the consequences cannot be wished away.”

“People are going to be hurting for a while. The consumer spending that powered our economy is not going to come roaring back — nor should it, to the extent that the money was borrowed, and often borrowed against inflated assets. I just read a report estimating that some of the renewed spending we are seeing comes courtesy of people who have quit making mortgage payments and so have extra cash to burn. This is not the path to sustainable growth.”

“Neither is the route taken by the big banks, which are reporting fat profits again. Those profits are built not on good loans but on trading operations, which are benefiting from what is essentially free money from the Fed. Sooner or later, interest rates have to rise or we’ll get another bubble.”

“Meanwhile, we’re stuck with a huge amount of real estate, both residential and commercial, that won’t be worth what people paid for it again anytime soon, if ever.”

“But however slowly, the pig will move through the python. The uncertain aftermath of the Great Recession will give way to something else. Something better, I believe. That doesn’t mean the real pain of today can go unaddressed. In many places, including this part of North Carolina and neighboring areas of Virginia, things were not going very well before the bubble, so we can’t just settle for the old status quo.”