The Housing Bubble

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The Daily Journal of Commerce reports from Oregon. “Bend’s residential real estate market has been on a roller-coaster ride over the past several years. The ride has taken its toll on Central Oregon brokers. Even though they’re trying to remain optimistic, they say they’re wondering if the market has hit bottom yet. ‘It’s been a vicious cycle over the past several years,’ said Sheree MacRitchie, president of the Central Oregon Association of Realtors and the principal broker with Steve Scott Realtors in Bend. ‘At first we were at the top of the list for fastest appreciation. Then things peaked and we instantly went to the top of the list for depreciation.’”

“Four years ago, when home prices initially started to drop for the first time in a decade, home owners began to worry and tried to sell their homes. As a result, the number of homes on the market rose sharply, bringing median home prices down significantly. Median home prices in Bend have dropped from $353,500 in 2006 to $204,000 last year. And industry professionals are worried the downward trend may continue if banks flood the market with foreclosed homes.”

“Dave Feagans, a principal broker with Alpine Real Estate in Bend, said he goes to sleep every night praying against such action. If banks were to put 100 or 200 homes on the market at the same time, Bend would see another year of significant home depreciation, he said.”

“Agents are worried that banks have a large supply of shadow inventory - foreclosed homes that they aren’t putting on the market due to low median home prices. Feagans said banks usually would not want to release the foreclosed homes at the same time because it would drive down prices even more. But increased federal pressure on banks to eliminate bad assets may take the decision out of banks’ hands, he said.”

“Prices have dropped 4 percent in the first quarter of 2010 alone. Most of that is because 35 percent of the homes sold in 2010 were bank-owned and 20 percent were short sales. But the real unknown is whether banks will start approving short sales, MacRitchie said. MacRitchie, for example, represented a proposed buyer on a short sale in Bend last month. The property received seven bids; the highest, from MacRitchie’s client, was for $20,000 over the listed price with 10 percent cash down. The property ended up going to a below-market bidder, and MacRitchie couldn’t get an explanation why.”

“‘For the first time in years the inventory is down and new building permits are down,’ she said. ‘You would think home prices would be on the rise. But the banks don’t have accountability and until they have to explain their decisions, who knows what will happen.’”

“Real estate agents have kept a close eye on the number of notices of defaults, the first warning that homeowners are behind on their mortgages. Notices of defaults in Bend rose from 589 in 2007 to 3,507 in 2009. In 2010, there were 402 in January alone.”

The Island Packet in South Carolina. “Even though unemployment rates appear to have topped out and home sales are slowly improving, the wave of foreclosures is still growing. And there is no end in sight, say real estate agents and attorneys. There are more than 300 properties scheduled to go on the block at Beaufort County’s monthly foreclosure sale June 7, the most many can remember.”

“Cathy West Olivetti, a Hilton Head Island attorney whose firm represents distressed homeowners, now helps older professionals such as doctors, a demographic she didn’t see earlier in the downturn. If there is an economic recovery under way, it’s the slowest one Olivetti’s generation has seen, she said. ‘I want my world back,’ said Olivetti, whose firm now devotes about half its staff to ‘loss mitigation.’”

“Todd McDaniel, president of the Beaufort County Association of Realtors, said he fears a developing ’shadow market’ in which many homes that have been sliding toward foreclosure will plunge into it. As borrowers who have so far staved off default run out of options to pay their loans, McDaniel worries the county’s monthly lists will grow longer.”

“As a result, today’s sellers need to realize downward pressure on prices is likely to continue, he said. If your neighbor’s home sold for $250,000 today, ‘you better price yours at $245,000,’ said McDaniel.”

“So when might the tide of foreclosures ebb? Most of those surveyed pointed to the same need: Jobs. Even though Beaufort County’s April unemployment rate of 7.3 percent was the lowest in the state, many of those workers are still struggling because they’re making only a fraction of what they did before the recession,Olivetti said.”

“Jeffrey Reilley, an attorney for three years at Laurich & Wiseman on Hilton Head and in Bluffton, longs for the day when his files contain 50 percent distressed mortgage cases rather than the current 80 percent. He’s not expecting that day to come any time soon. ‘All the inventory’s going to have to get worked out sooner or later,’ he said. ‘It’s just going to be slow.’”

The Columbian in Washington. “With buyers encouraged by a federal tax credit that expired in April, Clark County home sales grew by 61.2 percent last month. Clark County’s median sale price in April was $205,500, a decrease of 5.8 percent when compared with the median of $218,250 one year ago. In some cases, sellers refused to let go of the notion that their homes were still worth the values assessed during the housing boom that ended in 2007, said Jerry Rolling, a sales agent with Keller Williams Realty in Vancouver. As they held out for a higher sales price, values continued to erode.”

“‘So many people lost so much because they wouldn’t price it right,’ he said.”

“The stimulus program isn’t the only factor driving sales. Local real estate agents also attribute the increased activity to low interest rates on mortgages and the perception of bargain prices, as property prices continue to fall. Rolling said that conditions could improve for home sellers in the coming months, if banks continue to work with troubled homeowners. The federal government’s new foreclosure prevention program has been credited for pushing foreclosure rates down across the nation.”

“Banks also are waiting longer to list residential holdings, renting the properties or letting the sites remain vacant, real estate agents said. ‘The buzz on the street is that the banks are holding back on the homes they’ve got for sale. They don’t want to depress the market any further,’ Rolling said.”

“Other agents are hopeful that increased April sales are actually driving home values up, said Don Humphrey, an associate broker with Century 21 Cascade Pacific in Vancouver. ‘Since so many houses sold in April, there is going to be less inventory out there and more demand,’ he said.”

The Friday Flyer in California. “Gene Wunderlich is the Director of Government Affairs for the Southwest Riverside County Association of Realtors. ‘We held our mid-year meetings in Washington D.C. in May as well as attending the Chamber of Commerce Business and Legislative Summit in Sacramento, so I’ve had the opportunity to talk with both our state and federal legislators as well as hear updates from numerous economists and industry experts.’”

“Our prices are stable or appreciating, our sales are strong and our inventory is very low – two months compared to two years in many parts of the country. While most agree that we may have turned the corner and will not experience a ‘double-dip’ in prices, we’re still in for at least two more years of a market dominated by distressed properties. One-third (about 15 million) U.S. homeowners are upside-down and one-third of those are either in foreclosure or 60-plus days delinquent.”

“Fifty percent of U.S. home sales are distressed (70 percent locally) and we won’t reach sustainable price support until that number falls to five percent or less. The average delinquent homeowner remains in their home for 18 months today, owing to the prevailing bank philosophy that ‘a rolling loan gathers no loss.”

“Those who work in the administration believe they are responsible for stabilizing the market and stimulating a recovery. Most of the rest of us believe they precipitated the decline and are only delaying the true recovery. Constantly changing signals and policies out of the Fed and other entities have led to mass confusion and amazing lack of success in both loan modification and short sale programs.”

“On the upside, many insiders no longer foresee the ’shadow inventory’ many feared, but rather liken the inventory to a ‘pig in a snake,’ Improving employment numbers and continued low interest rates will restrict the number of people entering the pipeline, while attrition through a few successful loan modifications and short sales, together with increasing auction activity, will keep the volume that eventually gets dumped on us to a manageable level.”

“Finally, and in a nod specifically to our area, several economists agree we are facing another potential housing crisis – one that I have been pointing out for years. With minimal inventory levels and high demand, if builders don’t start ramping up soon we will face a very real housing shortage and the possibility of a price spike.”

“Last month, several asked for an extended graph of first-quarter sales and median price history longer than the ‘09-’lO charts from last month. You can see that sales volumes are up significantly over even previous record sales years.”

The Herald Tribune in Florida. “April was fiesta time in the Southwest Florida real estate market, with another month of sales harkening back to the boom times of mid-2005. But Realtors and industry-watchers acknowledge that a prime driver in the soaring March and April sales was the support of federal tax incentives and buyers’ efforts to beat an April 30 deadline for a signed sales contract.”

“Sales have not declined in the Sarasota-Bradenton market for nearly a year. They were up 32 percent in April. In Charlotte County-North Port — which has not seen a drop since December 2008 — sales rose 6 percent last month. Prices also continued their upswing, rising 5 percent in Sarasota-Bradenton to $163,600 from a year ago and 20 percent in Charlotte County-North Port to $114,500.”

“‘The lower end of the market has been really hot over the last few months,’ said Sam Schackow, a real estate appraiser with Chapman & Associates in Sarasota. ‘The tax credit obviously had a big impact on that, and we’re seeing the beginning of price increases in some areas. The bargain basement stuff is pretty much gone as far as I can see. If the perception in the market is that prices have stabilized and have started to increase, buying interest could pick up in the second half of the year. You could have people jumping in that don’t want to miss the bottom.’”

“We’re running out of inventory in the $100,000-and-below range,’ said Jason Painter, with Program Realty in Rotonda West. ‘If you’re looking for a decent 1,700-square-foot home in North Port for under $100,000, those homes were all over the place last year. Now it’s kind of tough to find them, and when you do, you run into multiple-offer situations.’”

“Roger Clyne, an agent with Horizon Realty in Venice, pointed to a 2,700-square-foot house on Siesta Key’s Avenida del Norte that went on the market for $388,000 in May and had four offers on it in five days. ‘When I went to make an offer for my client, they had already shut the door,’ Clyne said. ‘It’s things like that which really get the market pumped up.’”

“Investors have been a major factor in the market turnaround, and many have already sold properties at a profit. A Bradenton company made nearly $50,000 buying a 1,300-square-foot house in Bradenton for $91,400 in February and selling it in April for $140,000. A Sarasota company made $70,500 by buying a 3,300-square-foot house for $342,000 and reselling it on the following day for $412,500.”

From MarketWatch. “The president of the Richmond Federal Reserve Bank, Jeffrey Lacker, said Wednesday that he was growing less comfortable with the central bank’s ‘extended period’ language in its policy statement, suggesting that he is leaning toward wanting to raise short-term interest rates. The Fed has said in its policy statement that conditions are likely to necessitate extraordinarily low interest rates for an extended period.”

“Lacker said he supported selling some of the housing-related assets from the Fed’s balance sheet in advance of raising interest rates. According to the minutes of the Fed’s last policy meeting in late April, this was a minority view among central bankers. The Fed’s purchases of more than $1 trillion in mortgage-backed securities had tilted credit flows to the housing market, according to Lacker.”

“His motive for wanting to sell some of these assets is to ‘try to avoid sparking another housing boom in this recovery,’ Lacker said.”

From iMarket News. “Richmond Federal Reserve President Jeffrey Lacker Wednesday maintained his argument that the Fed selling the assets on its balance sheet before hiking interest rates is a viable strategy. Lacker told reporters following a speech that there are advantages to normalizing the Fed’s balance sheet earlier rather than later, noting while the Fed’s MBS holdings continues to skew credit towards the housing sector, the market has stabilized — although at a low level — and he expects that to continue.”

“‘I think that’s a legitimate option,’ he said regarding the idea of selling assets first. ‘My preference for normalizing our balance sheet with more alacrity comes from wanting to reduce that distortion, to the extent that it exists, sooner rather than later.’ ‘We should avoid sparking another housing boom,’ he said.”

The Contra Costa Times in California. “Dan Williams lives in the house he grew up in. Next door, nearly knee-high grass leads to a boarded-up window. No one lives in this house owned by Deutsche Bank. On the other side, Williams’ neighbor is another bank. Houses on Montgomery Avenue used to sell for $600,000; now, they might fetch $200,000. ‘I think half the houses on this block are empty,’ Williams said. ‘It’s like living in a ghost town.’”

“Squatters have lived in some; one that caught fire in October remains boarded up. In the East Bay, banks own more than 10,000 houses, and more than 20,000 are in the foreclosure process, according to RealtyTrac. Cities in east and west Contra Costa County have the most bank-owned and foreclosed homes per capita, followed by Concord and Martinez. In Alameda County, Hayward and Emeryville have similarly high per-capita numbers.”

“Tim Higares, a code enforcement manager, said Richmond tries to clean and board up empty houses, but the sheer volume overwhelms the city. ‘Every time we think we gain a little headway in this crisis, a new challenge presents itself,’ said. ‘Really, what we’re doing is putting a Band-Aid on a bigger issue. … The banks aren’t stepping up to the plate and selling these properties and stabilizing the communities.’”

“These extra demands on cities come as city budgets are shrinking. As banks gradually sell these houses, local governments’ property tax revenue will continue to drop, because the tax assessments do not fall from their bubble-inflated price until the bank sells the house. So, cities and school districts may have to make more cuts in the coming years.”

“One stands out with its collapsed roof and unpainted plywood covering the garage and front doors. Weeds grow around the trash in the front yard. It burned in October after its residents left; the firefighters’ report said it appeared that squatters had been there. A paper taped to the smoke-stained window warns against unauthorized entry. In 2005, that house sold for $570,000. It is up for auction June 1.”

“In another house down the street, squatters lived for about seven months before getting kicked out, neighbor Emil Ramirez said. Ten or 15 people stayed there, he said. ‘It’s been pretty bad around here,’ said Ramirez, who lives one vacant house away from Williams. ‘Really bad.’”

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The Journal Gazette reports from Indiana. “National housing experts believe the party’s over now that the homebuyer tax credits have expired. Fort Wayne real estate officials also say it may be time to sweep up the confetti. ‘I can’t imagine that (home purchases) would continue at the same pace,’ said Jim Torres, president of the Fort Wayne Area Association of Realtors. ‘We’ll have a better indication in the next few months.’”

The Courier Journal on Indiana. “House prices in the 13-county Louisville-Southern Indiana metro area are down 2.67 percent from a year ago, according to the latest data from the Federal Housing Finance Agency. They are down almost everywhere else, too. Only nine metro areas of 299 registered increases. Indiana University Southeast business professor Uric Dufrene notes this is the fourth straight quarter that Louisville prices have declined, and that’s never happened before. In fact, until the current downturn Louisville had never registered even two consecutive declines, according to figures going back to 1977.’

“Dufrene also noted that the 2.67 percent decline is Louisville’s biggest since 1983, when prices fell 3.54 percent in the January-March period. ‘What is alarming about this is that the price index was declining in the presence of the ($8,000) government tax credit and historically low mortgage rates,’ he wrote in an e-mail.”

WSTB on Indiana. “A report from the Indiana Association of Realtors shows that compared to last year, home sales statewide were up 28 percent in April. And prices went up 13 percent. Some say this is not a sign of recovery. In fact, this month numbers are already starting to plummet. ‘We are still mired in a very sluggish, slow market,’ said South Bend/Mishawaka MLS president and realtor Jim Dunfee.”

“Dunfee said homes selling now are selling for more than last year, because most of the homes sold in 2009 were foreclosures. He says when the home buyer credit stimulated activity, normal homes began selling again at normal prices. ‘They weren’t appreciated prices,’ he said. ‘In fact, many of them had depreciated. But it made that number of average sale prices go up, which has made civilians go, ‘Oh yeah, prices are going up again,’ but they are not.’”

“And he’s noticed something else since the home buyer credit expired. About 430 homes sold in this area in April, but this month only 155 have sold. ‘Since they were getting $8,000 or $6,500 to get a house, that brought people out to do it. Without that we have fallen right back where we were,’ Dunfee said.”

“‘We are cautioning homeowners to be very aggressive on their pricing, and not speculate,’ Dunfee said. ‘That is hard for them to accept when they read the national headlines about how things have turned around in April. But we are seeing, in this market, flat appreciation or slight depreciation over prices from the 2006 - 2005 market.’”

“Ben Simon’s last home took two years to sell, but he is hoping for better luck this time around. His house went on the market 10 days ago — two weeks after the expiration of the home buyer tax credit. ‘We put our house on the market right as that ended,’ said Simon. ‘So we missed the window of opportunity to jump into that whole scene of things, but it is cyclical. The people who sold their homes in that time period are now looking for places to live, so hopefully they will look this way.’”

The Dayton Daily News in Ohio. “A year has gone by and close to 90,000 foreclosures have been filed statewide since the Democratic-controlled Ohio House passed two measures by state Rep. Mike Foley aimed at helping beleaguered homeowners and renters. The Republican-controlled Senate has yet to take action on either of Foley’s bills or another sponsored by state Sen. Shannon Jones, R-Springboro.”

“The problem isn’t going away, pointed out Bill Faith, executive director of the Coalition on Homelessness and Housing in Ohio. Almost 25,000 foreclosures were filed in the state during the first three months of 2010, according to the Ohio Supreme Court report. In addition, Faith said, a Mortgage Bankers Association report found that one in 10 mortgages nationwide was either in foreclosure or 90 days delinquent.”

“‘This could be a real record-breaker of a year,’ he said.”

The Cincinnati Enquirer in Ohio. “Foreclosures shot up 13.5 percent in Greater Cincinnati and Northern Kentucky during the first three months of 2010. The region’s foreclosure growth outpaced Ohio’s 8.8 percent increased caseload but lagged Kentucky’s 28.3 percent climb. More ominously, the region’s latest casualties in the real estate crisis grew at more than twice the more moderate 5.5 percent increase during all of 2009.”

“Sister Barbara Busch, executive director of regional housing advocates Working in Neighborhoods, said through the end of 2008 unemployment or underemployment used to be a factor in about a third of counseling cases the agency handled. Since then, reduced income due to fewer hours or losing ones job accounts for nearly 70 percent of its caseload. ‘We’re seeing a lot more (cases) due to unemployment,’ she said.”

The Telegraph. “The long decline of the car industry and all its spin-off business has been exacerbated by the collapse of a housing market that has left prices close to what they were 50 years ago, when lifestyle magazines featured Detroit as the most desirable city in the United States. Decent three-bedroom homes can be bought for $10,000, but no one wants to buy.”

“Tired of Detroit’s status as the symbol of everything wrong with urban America, its new mayor has come up with a radical solution: to bulldoze the city. By reducing the amount of the space the city serves, millions of dollars would be saved, said Charles Pugh, president of the city council, and other areas improved. ‘We have to police property, put out fires, light the streets, pump water and shovel snow for all these sparsely populated areas where people really shouldn’t be living,’ said Mr Pugh, who revealed shortly before his election last year that his own home had gone into foreclosure.’”

“The plans are being watched by influential figures who believe other cities – including Philadelphia, Pittsburgh, Baltimore and Memphis – could follow suit.”

The Appleton Post Cresent in Wisconsin. ” A flurry of condominium sales has brightened the outlook for Richmond Terrace, the 147-unit mixed residential/commercial development downtown that has struggled financially and has yet to land tenants for its retail/commercial space. The sale of residential units has picked up after asking prices for condominiums were slashed, an across-the-board cut that averaged 40 percent.”

“Joyce Bytof, CEO of Coldwell Banker The Real Estate Group, said she assembled a team of three that brainstormed and took specific steps to make unsold units more attractive to the market. ‘We knew we had to price it right,’ she said.”

Chicago Now in Illinois. “Earlier this week Crain’s reported that Shelbourne Development Group, the developer of The Chicago Spire, has closed their sales center in The NBC Tower and will now be selling units in their own offices on Wacker Drive. It seems that Shelbourne owed their landlord about $316,000 in back rent and the landlord filed an eviction notice a while back. The Chicago Sun Times also reported that key staff members have left the developer’s operation.”

“Shelbourne…even got so desperate that they tried to convince union pension funds to invest in the project under the premise that it would create union jobs. Fortunately, the unions…recognize that Chicago needs another condo development like we need a hole in the ground (uhhh, wait…..we have one of those). The unsold condos in the Spire represent about 20% of the total downtown unsold condo inventory.”

“Speaking of the hole…The Chicago Architectural Club announced a winner to their contest for ideas on what to do with the hole. The winning idea involved transforming the area around the hole into a beach and launching a yellow hot air balloon (representing the sun) that would carry a circular swimming pool. That idea probably has a better chance of coming to fruition than the original plan and is far more practical.”

“My timing was awful. Housing prices in Chicago plummeted as soon as I finished signing my name on our closing documents. That was back in 2006, when my wife and I purchased our home in suburban Chicago. We managed the neat trick of buying when housing prices in the city and suburbs were at their highest point.”

“The housing market today is a lot different. Like so many others across the area, our home has lost value. I’d guess that I’m one of the nearly 25 percent of homeowners today who is underwater. This means that I owe more on my mortgage loan than what my house is worth. How much more? I’m not sure; I don’t want to pay for the appraisal that’d give me the bad news.”

The Irish Independent. “Limerick-based Chieftain Construction group has surrendered its landmark Chicago €75m apartment tower to (a) private-equity venture. Chieftain had raised more than €8m from 47 Irish investors and $84m (€69m) from US-based Corus Bank in 2006 to finance the construction of the 35-storey Lexington Park condominium tower near Chicago’s main street, Michigan Avenue. Now the 333-unit apartment tower has a new claim to fame as the city’s ‘biggest condo tower to be taken over by its lender in the current housing crisis,’ according to the reputable local business magazine, ‘Crain’.”

“Chieftain CEO Sean O’Sullivan said that some Irish buyers were among those who had paid deposits on about 180 of the units and who had not closed their sales because construction work was not completed. Sales had been completed on only three units.”

The Chicago Tribune In Illinois. “At $169,000, it’s a lot of house for the money, and John Wozniak, co-owner of J. Lawrence Homes LLC, isn’t interested in going a penny lower. During the boom times that made Will County a real estate hot spot, the three-bedroom single-family houses for sale in his Silver Leaf community would have commanded an additional $50,000, he said.”

“The Silver Leaf housing development is a long ride from downtown Chicago, and, as Wozniak can attest, sales in the area have been slow. His Wheaton-based company operates a half-dozen communities, and during the fat years sales of 20 or more houses monthly would have been a reasonable tally. By 2009, however, sales had dwindled to one or two a month.”

“To shoppers waiting for home prices to fall further, Wozniak offers this advice: Don’t. ‘This adjustment we’ve made over the past three years is really all we can do,’ he said. ‘I don’t think we can go any lower than we are right now. I really believe that.’”

Sun Times Media in Illinois. “Many have called it the great housing bubble — a period during the early to mid-2000s when there seemed to be no end to the rise in home values. But as is the nature of any bubble, it burst — and with it came a wave of foreclosures that swept through the country. According to an April foreclosure report prepared by RealtyTrac, Illinois ranked eighth in the U.S. among states with the fastest rate of new foreclosure filings — one for every 280 homes, a 38 percent rise compared to April 2009.”

“Another leading factor for the current wave, according to Geoff Smith, senior vice president for the Woodstock Institute, a Chicago-based, nonprofit research and policy organization, is the increased number of ‘under water’ homeowners. New filings aside, what is of greater concern for Smith has been the increased number of individuals who have gone through the entire foreclosure process, which he estimated to have risen by as much as 56 percent during the first three months of 2010 compared to the same time last year.”

“‘In 95 percent of those cases, you’re seeing the properties becoming bank-owned,’ he said.”

The Pioneer Press in Minnesota. “Gary Benson is the perfect renter. He’s never been late on a payment. He keeps his St. Paul house and yard clean. He spends his own money making repairs. But perfect isn’t good enough. His family soon will be forced to move out — not for anything he did wrong, but because his landlord didn’t pay the mortgage. The house must be sold, and real estate agents say it’s easier to sell rental property if all tenants are gone.”

“‘There is no sense in kicking us out. This would be another abandoned house,’ said Benson, standing amid cardboard boxes in his living room. ‘If we left, you would have meth heads breaking in and stealing copper pipes. That is the last thing St. Paul needs.’”

“Gary and Cynthia Benson already had been hit by the more familiar type of foreclosure — they lost the home they had owned for eight years. Gary Benson filed for bankruptcy in 2008.”

“The couple never has missed a rent payment. Their problem is with the new owner — Freddie Mac, the federally sponsored agency that buys and sells mortgages. Benson wants to keep renting the house, then buy it when he qualifies for a mortgage in November. In good times, banks might be patient — but not now. Real estate agent Randy Burg, who is trying to sell the Benson house, said the bank could wait, only to find out that Benson didn’t qualify for a mortgage. Better to get the family to leave soon, Burg said, to sell to the first qualified buyer.”

“Last week, the exasperated couple stood in the house that never quite became a home. ‘I am not perfect. I am not sitting here shining up my halo,’ said Gary Benson. ‘But people like us are getting dogged for other people’s greed.’”

“The most recent data from the SP Case-Shiller survey of housing prices…indicated Minneapolis-St. Paul area, which includes Pierce and St. Croix counties in Wisconsin, showed the second-worst drop at 2.7 percent for the month. This is the sixth consecutive month in which the index showed some drop for our metro area.”

“Prices for a composite of the 20 metro areas included in the survey also edged down for the sixth month but remained slightly above where they were a year ago. The overall conclusion is that while housing prices recovered somewhat in mid-2009, they are eroding again.”

“Yes, ‘cash for clunkers’ gave a temporary boost to auto sales. A large tax credit and the Federal Reserve buying more than $1 trillion worth of mortgage securities to keep home loan interest rates at historic lows gave some temporary support to housing sales and prices. The Fed’s general flooding of the economy with new money has made stock markets look healthier than underlying conditions warrant.”

“But…any withdrawal of government stimulus seems to make the economy sputter. The U.S. economy absorbed problems over six years rather than six months. They include a massively unsustainable run-up in housing construction and prices, a banking sector that is riddled with bad loans from top to bottom and a decade of large federal deficits.”

“There is no simple fix for the U.S. economy. The hangover of excessive money growth, overbuilding, inflated real estate and financial asset prices, bad investments and an inflation-adjusted doubling of the national debt between 2001 and 2010 is one that cannot be cured with aspirin or a can of gas treatment. It simply will take time, years rather than months.”

Post off-topic ideas, links and Craigslist finds here. The Florida/DC meetup link at the forum is here. Click here for the shadow inventory thread.

Please consider signing the Shadow Inventory petition.

Post off-topic ideas, links and Craigslist finds here. The Florida/DC meetup link at the forum is here. Click here for the shadow inventory thread.

Please consider signing the Shadow Inventory petition.

It’s Friday desk clearing time for this blogger. “When Todd Bjerstedt built luxury homes in Woodbury, he was the eternal optimist. Bjerstedt had pumped thousands of dollars of personal savings into his struggling homebuilding business, only to see it fold in 2006. He looks back on his change of fortune with a sense of humor. ‘We used to have a lot of things including some savings,’ Bjerstedt said, laughing. ‘Everything fundamentally is gone.’”

“Last fall, the Bjerstedts lost the struggle to keep their Hudson, Wis., home out of foreclosure. Bjerstedt oversaw construction of the $700,000 home himself. Now his family leases a townhome in Hudson about one third the size of their old place. Bjerstedt said their lives have changed dramatically. ‘When we wanted something before, it usually just appeared,’ he said. ‘Those days are behind us — maybe forever.’”

“Meanwhile, his family is trying to get used to their scaled back lifestyle. His 15-year-old daughter Olivia says all the tumult in her dad’s career has changed her outlook. ‘Before, I guess I sort of got things handed to me more, but now it’s made me realize that not everything’s just easy going,’ she said.”

“The extravagant, customized house on Baldy Mountain Road outside Sandpoint was built in November 2005 by the stunt charity show ‘Extreme Makeover: Home Edition,’ relying on a massive volunteer effort to help a bachelor who had stepped in to raise his sister’s kids after she passed away. In past interviews, Eric Hebert, the man who was given the home, said he refinanced – first for $250,000, then for $382,500 – thinking he had a secure job working construction, but his employer went out of business. Eventually, he tried to sell the home, but by then – May 2008 – the housing market had gone from bubble to puddle. ”

“He defaulted in January 2009, and apparently left town last June or so. The bank took it back in October. The list price for the home has gone from $529,000 to just over $300,000. ‘I am disappointed,’ said Stan Hatch, a Sandpoint real estate agent and the man who coordinated volunteers and resources for the show back in 2005. He wonders whether the entertainment needs of the show overwhelm its supposedly charitable purpose. ‘That house is not just first class, but way over the top. If you could take that many resources and apply them over three, five, six families that need help.’”

“U.S. Army Capt. Jerry Frimml was granted his request in April of last year and was released from combat operations. His report date at Fort Carson was just two months later in July, so during that time, Frimml put his house up for sale. Now, a year later he said he has seen little to no movement on the house. Hoping he would meet the necessary requirements to receive financial help, Frimml began the application process for HAP, only to be let down as he found out quickly he did not qualify. Officials with HAP said the July 2006 date was originally put into place because that is when the housing market nationwide began to spiral downward.”

“‘Recently we had to drop the asking price, and right now I am paying the mortgage on the house in Texas and I am paying my lease on my house up here at Fort Carson,’ Frimml said.”

“A drive through the streets of Dalton, primarily the east side of town — where many Hispanic immigrants reside— shows an area in decline. ‘For Sale’ signs are plentiful on homes, but not as numerous as ‘For Rent’ signs on large and small apartment buildings and homes. A vacant house sits across Ashworth Avenue from the home of the Hernández family, who says the owner couldn’t afford her mortgage anymore, so she simply left. ‘She used all her income tax (return) last year to save her home, but in the end she couldn’t make the payments,’ said María Hernández.”

“María and her husband bought their house seven years ago, when they were both working 60 hours a week at local carpet factories. Now they only work a couple of days a week and have tried to sell their home for more than a year with no success. Their desperation has reached the point where she’s considering returning to Mexico, even though they’re in the country legally. But Dalton Mayor David Pennington believes those who were going to leave have already left.”

“‘A large number of people who probably left are undocumented, they couldn’t sign up for any benefits or services, so they were the first to leave,’ he said. ‘Those who bought houses here, were born here, are solidly established here, they are not going anywhere.’”

“A recent survey by CoreLogic found Oklahoma has the lowest percentage of people who owe more than their houses are worth. Local lenders said while bankers in other parts of the country wrote loans for more than the houses were worth, local loans have been more realistic. For example, if a house was appraised at $100,000, it would be unwise for a banker to lend the buyer $120,000 on the purchase. ‘Right away you have a problem loan,’ if that were the case, said Gary Chapman, chairman and CEO of the Bank of Cherokee County.”

“Many banks resell the loan to the secondary market. Since those bankers know the papers will change hands, they may not be as careful in ensuring the buyer has the resources to repay the loans, he said. ‘We do not sell our mortgages. We keep our mortgages here,’ he said.”

“Buyers may not qualify for as large a loan as they could have in the days of looser lending policies. ‘A few years ago, the lenders could loan a 55 to 60 percent debt to income ratio, and that’s unheard of now,’ said Linda Pippin of Charter Mortgage Group.”

“William Dudley — president and CEO of the Federal Reserve Bank of New York — returned to his alma mater Friday to give the commencement address at New College of Florida. ‘Although the Federal Reserve has been aggressive about easing monetary policy to support economic activity, the recovery is not likely to be as robust as we would like for several reasons,’ Dudley said.”

“Among those reasons: Households are ‘deleveraging.’ In other words, households are trying to recover from the loss of ‘paper wealth’ associated with the rise and fall of housing values. Those losses might not have been so disruptive but, as Dudley noted, homeowners borrowed money based on housing values — and then spent with abandon. ‘This pushed the consumption share of nominal gross domestic product to a record high of about 70 percent,’ Dudley noted.”

“‘The banking system is still under significant stress — ‘particularly the case for small- and medium-size banks that have significant exposure to commercial real estate loans. This stress means that banks have been slow to ease credit standards as the economy has moved from recession to recovery.’”

“‘Some of the sources that have supported the nascent recovery are temporary.’”

‘For instance, inventories that were liquidated cheaply have been depleted and, perhaps most important, ‘fiscal stimulus from the federal government is subsiding and will soon reverse.’”

“‘Outlooks for U.S. home prices remain very guarded,’ said D’Ann Petersen, a business economist for the Federal Reserve Bank of Dallas. ‘I think this is a genuine concern, given the uncertain environment we are currently operating in.’”

“North Texas pre-owned home sales were up 9 percent in the first four months of 2010 from the same period last year. Most of that gain is attributed to the federal home-buying tax credit, which just ended. ‘The problem is that most of the improvements in the housing sector – sales, values, general activity – are government-induced,’ said Dr. James Gaines, an economist for the Real Estate Center at Texas A&M University. ‘Even the ultra-low mortgage interest rates we have today are government-induced by the Fed. The basic issue is whether demand will sustain at a level sufficient to keep prices up as the government incentives – primarily the tax credit – go away,.’”

“High foreclosure rates in many markets, including North Texas, are also a drag on the housing recovery. ‘At the national level, foreclosures have been slowed by modification efforts,’ Petersen said. ‘Thus, foreclosures going forward could still impact prices.’”

“With 11 consecutive months of growth, San Diego County is leading the nation’s largest metro areas in home-price appreciation. Analysts warned that San Diego’s increase may only reflect a change in market mix, not an increase in value, and that it will likely to slow down and possibly reverse as additional foreclosed homes hit the market.”

“Brad Kemp, director of regional analysis at Beacon Economics, said bank policy rather than market mix may be at work. He argued that banks are keeping distressed homes off the market and thereby prompting overbidding by bargain hunters. That way, prices come closer to outstanding loan balances and banks lose less. ‘We think it’s an artificially unsustainable rise being caused by artificially keeping inventories low,’ Kemp said.”

“A separate report from the California Association of Realtors showed the state’s median home prices were up in April, about 1.5 percent from the month before and 21 percent from a year ago. San Bernardino and Riverside counties prices jumped 17.3 percent from a year before. ‘Real estate is very local. So these aggregate measures can be very misleading,’ said Leslie Appleton-Young, the association’s chief economist.”

“In California, home prices are rising in part due to the scarcity of foreclosed properties on the market despite high demand in areas such as the Inland Empire, Appleton-Young said. ‘The reason the California number went up is because we were selling fewer homes in the inland areas because there was not enough supply,’ she said.”

“Alaska-based banks saw increases of 14 percent to 28 percent in net income during 2009 following the disastrous fourth quarter of 2008, but nobody is breaking out the party hats just yet. Bankers remain cautious about job growth, interest rates, continuing soft loan demand and pending financial reform legislation in Washington, D.C.”

“Working through nonperforming loans and assets acquired through foreclosure were a major challenge of 2009. Other real estate owned, or OREO, has increased at the six Alaska banks from $7.6 million at the end of the third quarter of 2007 to $34 million in 2009. The key to managing OREO, said Northrim CEO and founder Marc Langland, is patience.”

“‘From my knowledge, most banks have good quality bad stuff,’ Langland said. ‘People laugh at that, but it’s the truth. It’s a matter of time. When you have low interest rates like this, you have a good opportunity to go about marketing the products without doing a lot of stupid stuff so you don’t destroy the prices by lowballing.’”

“‘Things have improved somewhat in terms of the response from banks,’ said Seema Agnani, executive director, Chhaya Community Development Corporation, a non-profit organisation based in New York that counsels home buyers and owners to prevent foreclosure. ‘Some are finally giving owners loan modifications that comply with the Home Affordable Modification Programme. On the other hand, many of those who were in the initial stages of foreclosure have lost their homes.’”

“In California, the residential foreclosure market has softened a bit, but the market has shifted to commercial real estate. ‘Due to a large number of vacancies, bank defaults have forced price reductions on both office and apartment buildings. Though the rents are usual in many cases, prices have gone down considerably, even 35 percent in many cases,’ said Jeevan Zutshi, owner, Jeevan Zutshi Real Estate Services and an expert on residential and commercial real estate.”

“He doubts the intentions of commercial lenders like Chase who are not doing anything to alleviate landlords’ suffering. ‘It appears at times that they welcome foreclosures,’ Zutshi said. ‘Perhaps they have asset management capabilities as well now and are anxious to acquire these properties by defaulting on them. It is brutal. So many people are wondering whom Obama’s efforts in this direction have been helping.’”

“The derivative disaster that devastated Wall Street now stalks state and local governments. Over the last decade, their argument goes, state and local officials who lacked expertise in the multi-layered ’synthetic’ financial instruments so dear to New York’s mega-banks have been seduced into them anyway. The result is that states, cities and counties ended up owning collateralized debt obligations and credit default swaps like those that blew up in the faces of major corporations like AIG during the 2008-2009 financial meltdown.”

“A spokesperson for one of the main lobbying groups for derivatives, the Securities Industry and Financial Markets Association, said that while some entities experienced problems with interest swaps, they worked as intended for the majority, lowering rather raising their debt costs.”

‘Richard Eskow of the Campaign for America’s Future, said the industry’s defense that most deals have worked is like saying ‘the vast majority of Zepplins functioned as designed, too, but the Hindenburg put an end to lighter-than-air travel.’”

“Tax credits and historically low mortgage rates have failed to lift home prices so far this year. Prices fell 0.5 percent in March from February, according to the Standard & Poor’s/Case-Shiller 20-city index. That marks six straight months of declines — a sign that the housing market is going in reverse. ‘It looks a little like a double-dip already,’ economist Robert Shiller said in an interview.”

“Blaine County Assessor Valdi Pace told the County Commission that the total estimated value of all property in the county for 2010 has dropped to just under $10.6 billion—an 11 percent decline from 2009 values, which were just under $11.9 billion. Pace said the sharp drop over last year did not surprise her, given the state of the housing market. ‘That’s roughly what I expected,’ she said. ‘The market has finally caught up with us.’”

“There was at least some humor inserted into the discussion of the dismal news when Blaine County Commissioner Angenie McCleary asked Pace to repeat her statement about when the peak of the county’s total assessed value took place, in 2008. Apparently, that coincided with McCleary’s purchase of a home in the Ketchum area. ‘I’m just trying to confirm that I bought my house at exactly the wrong time,’ she said.”

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The Denver Post reports from Colorado. “It’s not pretty in the 80013 ZIP code that’s second-hardest-hit along the Front Range for unemployment claims. Last October, with the kids grown, their house paid off and a few bucks in the bank, Kathy and Herb Myers set in motion the economic plan that would propel them to retirement. They bought a modest ranch home on a cul-de-sac in southeast Aurora and took on another mortgage — albeit a small one — largely because the convenient workshop dovetailed with 56-year-old Herb’s passion: the woodworking that would launch his second career. He quit his auto-repair job and sank some retirement money into a small business. Kathy, also 56, had already finished classes to earn certification as a nursing assistant. Finding a job to cover the mortgage seemed only a matter of time.’

“She never counted on an employment drought that would drag on for two years and counting. The Myerses don’t live on the brink of economic desperation, but Kathy’s difficulty finding work has drastically changed not just their financial outlook but the can-do attitude she once brought to the workplace. ‘I clean the house and do laundry, but I don’t make a difference to anybody anymore, outside of Herb,’ Kathy said. ‘You lose faith in yourself. Society loses faith in you, and you start to believe it. That’s an ugly thing.’”

“Last year, Rita and Michael Pugh brought home enough income to consider themselves firmly entrenched in the middle class, living with their youngest son, 13-year-old Jonathan, in a nice condo. Two lost jobs and one foreclosure later, they were on the verge of living out of their car. Rita opened the refrigerator one day and found only a half-gallon of milk, some ketchup, mustard and butter and then did something she’d never done before. She visited a food bank.”

“‘It hurts to see yourself at that level because we’ve never been there before,’ said Pugh, whose family of four now shares a tiny apartment. ‘I looked at my husband and said, ‘How can people live like this?’”

“The last time the state was hit this hard by unemployment was in the 1980s with the real estate, oil and gas, and savings and loan collapses, said Gary Horvath, managing director for the research division at the Leeds School of Business at the University of Colorado at Boulder. Back then, the downturn was centered in Colorado, and people left the state to find work. ‘With the current recession, there has been no place to hide,’ Horvath said.”

The Arizona Daily Sun. “Investment properties were the bulk of Jacquie Kellogg’s rental portfolio when she got into property management here in Flagstaff five years ago. Today, roughly half of the homes she represents are now owned by former residents who have left the community for one reason or another but have not sold their homes. In particular, many seek out Kellogg’s services because they have lost their jobs.”

“‘There weren’t a lot of distressed properties (five years ago), there weren’t a lot of renting instead of selling,’ Kellogg said. ‘It wasn’t like it is now, where people are losing their jobs and having to leave Flagstaff and wondering what do you do with a house you just bought two years ago.’”

“Kellogg said some mortgages, especially on homes bought during the peak of the market, simply cannot bring in enough revenue to make a full payment to the bank. She offers an example of a home in Ponderosa Trails that might have a $2,000 monthly mortgage. Kellogg might be able to rent the home out for $1,800 to a family. Minus the $180 monthly fee for Kellogg, the homeowner could get $1,620 to pay toward the mortgage.”

“Many turn to her believing it is a temporary solution by bringing in some form of revenue while waiting for the real estate market to recover. ‘That is the key word: until the market turns around. Everyone wants to rent out their house until the market turns around,’ she said.”

The Arizona Republic. “For a financially struggling homeowner, the decision to pursue a short sale does not come easily. Homeowners who make that choice generally do so after months of searching and pleading for an alternative that would have kept them in the home. Even when it goes smoothly, the short-sale process is painful for sellers. When it’s bumpy and slow, the pain is far worse, said experts who met in Tempe this month for an educational conference on short sales.”

“Phoenix-area short-sellers’ many encounters with insult upon injury stem from a combination of problems, including sellers’ lack of experience with the process and lenders’ initial reluctance to adopt on a mass scale what they had long considered an obscure means of resolving bad mortgage debts.
Scottsdale resident Mary Purvis, 57, said Bank of America finally approved her short-sale application after 10 months of frustration and uncertainty. But the pain didn’t stop there.”

“‘The sale finally went through last September, but now BofA reported my short sale as a foreclosure on my credit reports, which I have no idea how to fix,’ Purvis said.”

“The bank approved 18,000 short-sale applications in April, said Bank of America’s Matt Vernon, the bank’s top executive in charge of foreclosures and short sales. Unfortunately, it received more than 50,000 short-sale applications that month. ‘Our system was never designed to handle this kind of volume,’ said Rick Sharga, chief economist at RealtyTrac. ‘Short sales were never intended to be a mass-market product.’”

The Salt Lake Tribune in Utah. “More than 22,000 homeowners in Utah found themselves in some stage of foreclosure between July 2008 and April 2010, according to a Salt Lake Tribune computer analysis based on data from RealtyTrac. And having lagged behind other hard-hit regions where housing markets are now slowly improving, Utah has yet to reach the peak of its crisis.”

“In Salt Lake City, foreclosure filings doubled in the first three months of 2010 compared with the same time last year, the highest rate of increase for all U.S. cities. ‘I truly believe that we have not seen the worst of this,’ said Julia Borst, president of the Utah Mortgage Lenders Association. ‘I can’t even explain to you the gravity of it.’”

“Alisa Madill and her husband moved into their dream home in Riverton four years ago. But the recession devastated the family’s concrete business as the value of their home plummeted. They’ve borrowed against her husband’s life insurance policy and wiped out their 401(k) to pay bills. Now seven months behind on their mortgage and with two failed attempts to modify their loan, Madill faces stark uncertainties. Concrete work is picking up again, which might help with the latest loan modification plans, but they still may not be able to keep the house.’

“‘At any point, they could say we’re out,’ Madill said. ‘It’s not a home we really want to walk away from. All of our eggs are in one basket.’”

“The Tribune’s analysis found that nearly 12,100 foreclosed properties have languished unsold across Utah, often for months, held by banks or lenders after auctions failed to bring a buyer. These real-estate owned, or REO, properties exert a downward pull on property markets and overall home values, especially when empty houses are allowed to deteriorate. This burgeoning stock of REOs is straining the ability of lenders and loan servicers to keep up, Borst said. ‘They had no idea it would happen like this,’ she said.”

“The list of top banks and lenders now filing foreclosures in Utah includes some of the largest institutions bailed out by the federal government because of the recession, such as Wells Fargo and Bank of America, as well as the government-backed lenders Fannie Mae and Freddie Mac. Thousands more Utah foreclosures are being filed by loan servicers and companies fronting for banks, such as BAC Home, Aurora Loan Services and Mortgage Electronic Registration Systems, or MERS, a controversial mortgage registry set up by lenders in the 1990s whose name is now on millions of foreclosure actions across the country.”

“In the mid-2000s, lenders in Utah and nationally wrote large numbers of subprime, adjustable-rate mortgages (ARMs) and homebuyers — of high, moderate and low incomes alike — snapped them up. Credit was so fluid, many banks and private lenders gave only passing scrutiny to a borrower’s ability to repay. In some cases, lending practices bordered on predatory.”

“‘We’re seeing a lot of bad mortgages out there,’ said Jeremy Roberts, a mortgage consultant in Draper. ‘It was the real estate people. It was the appraisers. It was the mortgage officers. They were flipping pages faster than you could read them. It really was a real estate bubble that was about to burst. It was just so unregulated and nobody cared.”’

“With the economy starting to boom in 2003, Steve Newton of Kearns leveraged his home to boost his growing industrial manufacturing business, and it seemed a safe gamble. He had paid the mortgage off several years before. With $5 million annually in sales, Newton never imagined taking loans against the property might put his home and family at risk.”

“But problems surrounding the construction of a new facility eventually led to corporate and personal bankruptcy. After applying for more than 125 jobs from laborer to chief executive, Newton remains unemployed. Now he uses his unemployment dollars to make monthly payments on his debt, cover the utilities and buy a little food.”

“With help from family, he’s caught up some, but the bank is demanding cash he doesn’t have. ‘My plan is to do the best I can to keep these two banks from repossessing this home and kicking my family out in the street,’ said Newton, the father of two small children. ‘What everybody needs is time, and what these banks don’t need are more repossessed homes.”’

“‘The point is for anyone who thinks there’s a recovery or jobs out there,’ the 49-year-old said, ‘there isn’t.”’

The Deseret News in Utah. “Speaking at the Mid-Year 2010 Real Estate Summit at the Grand America, Zions Bank executive vice president Michael Morris said the Utah commercial real estate market may not even begin to recover until next year. ‘This year I don’t see much reason for optimism that we’re going to have a big rebound in commercial property,’ he told the Deseret News.’

“Morris said the amount of debt used to finance projects prior to the economic meltdown has caused major problems for the commercial sector and there are no simple solutions that will resolve them anytime soon. ‘It’s more that we over-leveraged then we overbuilt,’ he said. ‘Over-financing and over-leveraging and over-engineering financial products is really what has led to an artificially highly valued market to begin with.’”

“‘On the residential side, declining home values have pushed housing prices back to much more affordable levels, according to Zions Bank senior vice president Lee Carter. ‘The lower end of the market (under $300,000) … is recovering,’ he said. Carter described the middle part of the market as ‘a little bumpy’ with the higher end ‘going to remain a mess for some time to come.’”

“He said prices on the more expensive unsold inventory are falling more dramatically — on a percentage basis — than any other segment of the housing market. Eventually, the market could see more foreclosures or short sales as those properties are no longer financially viable for their owners. ‘We’ve just got too much high-end real estate in the state … and we just don’t have people with the incomes and fundamentals that can support those higher payments,’ he said.”

The Las Vegas Business Press in Nevada. “Southern Nevada’s apartment market had a surprise uptick in activity during the first quarter. Vacancies dropped to 10.2 percent, while average asking rents increased for the first time in a year and a half, CB Richard Ellis reports. ‘Vacancies have gone down for the last five months, which is a pleasant surprise,’ CB Richard Ellis Senior Vice President Spencer Ballif said. ‘It still isn’t a healthy market, but it’s better than what it was. There are a lot of renters that have been burned by investment homes.’”

“Nevada had the nation’s highest state foreclosure rate for the 40th straight month in April, with one in every 69 housing units receiving a foreclosure filing last month or more than five times the national average, RealtyTrac reports. In April, 16,217 properties statewide received a foreclosure filing, up 10 percent from the previous month.”

“‘We are getting a lot of renters who have lost or sold their homes, and are now moving into apartments,” said Rondetta Troutman, senior vice president of Picerne Development Corp., which manages 5,680 apartment units across 16 properties valleywide. ‘We’re seeing an increase in people who are having trouble qualifying for home or are nervous about a home purchase.’”

“‘Some of the rents were well below where they needed to be,’ Bentley Group President Christopher Bentley said. ‘We still have some catching up to do with jobs and getting people back to work. It’s going to get better, but we are going to see a new normal. We are going to get back to normal underwriting and rent growth of 2 to 5 percent a year, and not the dramatic spike we saw a few years ago.’”

‘Roughly three-quarters of apartment properties still offered rent concessions during the first quarter, CB Richard Ellis reports, with move-in specials among the top incentives. ‘The latest quarter represents a slowdown in the decline of the apartment market, but economic recovery has yet to clearly show its face,’ Applied Analysis principal Brian Gordon said. ‘The depth of Southern Nevada’s recession has property managers and lenders adjusting their financial pro formas to mirror an extended recovery period, which may reach into 2011. The ability for rents and occupies to return to prerecession level will span an even longer period of time.’”

The Reno Gazette Journal in Nevada. “Northern Nevada’s housing collapse didn’t just cost Randall Hoover his equity in two homes, it cost him an opportunity for job advancement. An area manager for Amazon, Hoover was offered an opportunity to transfer to Pennsylvania for an Amazon startup venture. But as the owner of two underwater homes that he can’t sell, Hoover didn’t want to risk the potential hit to his credit and finances by moving to a different area.”

“‘I did an assessment of my properties, and I just said, ‘I can’t do this,’ Hoover said. ‘Even with the company paying for my moving costs, I would still be behind financially.’”

“Although walking away is an option, Hoover said he spent a lot of time getting his credit back on track. After doing a short sale on a California home several years ago, it took Hoover a decade to get good terms on home loans once again. ‘I feel the damage (from walking away) would result in bigger penalties for longer periods of time. And if more people bail … it will just continue to pull the economy downward,’ Hoover said.”

Post off-topic ideas, links and Craigslist finds here. The Florida/DC meetup link at the forum is here. Click here for the shadow inventory thread.

Please consider signing the Shadow Inventory petition.

Post off-topic ideas, links and Craigslist finds here. The Florida/DC meetup link at the forum is here. Click here for the shadow inventory thread.

Please consider signing the Shadow Inventory petition.

-by the Mysterious Flying Miser

From Boston Real Estate Now:
“Want to know one of the scariest things out there right now when it comes to the precarious state of the housing market?  It’s the huge amount of shadow inventory banks and other lenders are sitting on, ready to dump on the market as prices start to move upward again.

“… shadow inventory is the fancy name for foreclosed homes and condos that banks have taken back, but have yet to put on the market.

“The numbers are staggering - 1.7 million homes across the country - owned by banks which eventually plan to dump them back on the market.  That’s compares to about 3.7 million homes already for sale from Boston to San Francisco.

“Check this story out from Las Vegas:

“In Nevada, Bank of America has announced plans to put 500 foreclosed homes a month on the market.  And given the massive inventory Bank of America and other big lenders are sitting on, this pattern is likely to be repeated across the country.  Bank of America alone took title to tens of thousands of homes each month towards the end of 2009.

“Conveniently, at least one bank executive is blaming the backlog on the Obama Administration’s loan modification campaign, reports the Las Vegas Journal Review, citing comments made at an industry conference.  Banks are holding off on foreclosures as they attempt to work things out with struggling homeowners, which along with a myriad of temporary foreclosure moratoriums imposed by different states, has helped create the giant overhang, John Ciresi, a vice president and portfolio manager for Bank of America, is quoted as telling fellow industry executives.”

From the Arizona Republic:
“Phoenix area home prices could experience another drop in value because of tens of thousands of properties that could flood the market in 2010.  This shadow inventory, located across metropolitan Phoenix, is threatening the recovery of the real estate market and overall Arizona economy.

“‘Phoenix’s shadow inventory is very real and very scary when you think about all the homes that could flood the market,’Arizona housing analyst RL Brown said.  ‘Some people are in denial about the area’s shadow inventory, but by being informed on what could impact the market, we can all make better real-estate decisions.’”

…

“So far, lenders are opting for foreclosure over loan modifications in most cases.  Recent federal figures showed only 15 percent of the homeowners eligible for loan modifications have received one.  Lenders know they can take back Phoenix homes through foreclosures and get them off their books quickly by slashing prices and reselling them to investors.  They have been doing this for the past 15 months.

“Uncertainty about what those investors will do with the more than 50,000 foreclosure homes they already have bought also stokes fears about a shadow inventory.  Most foreclosure homes bought by investors have been turned into rentals.  Now, there are so many rental properties competing for tenants, rents are falling.  If new investors find they can’t make money off rentals, some are likely to try to resell those homes to try to make a quick profit.”

From the Wall Street Journal:

“As of March, banks had an inventory of about 1.1 million foreclosed homes, up 20% from a year earlier, according to estimates from LPS Applied Analytics.  Another 4.8 million mortgage holders were at least 60 days behind on their payments or in the foreclosure process, meaning their homes were well on their way to the inventory pile. That ‘shadow inventory’ was up 30% from a year earlier.

“Based on the rate at which banks have been selling those foreclosed homes over the past few months, all that inventory, real and shadow, would take 103 months to unload.  That’s nearly nine years.  Of course, banks could pick up the pace of sales, but the added supply of distressed homes would weigh heavily on prices - and thus boost their losses.

“According to Goldman Sachs, the government Home Affordable Modification Program started less than 80,000 trial modifications in March, less than half the number in the peak month of October 2009.  At the same time, a growing number of modifications are being canceled as borrowers prove unable to pay.  By Goldman’s count, about 68,000 were canceled in March.

“All this means that little can stop banks’ inventory of distressed homes from growing.  Too many people owe too much more on their homes than they can afford.  For the housing market, that could mean a long-lasting hangover.”

From Bigger Pockets:
by Ryan Hinricher
“Some believe the shadow inventory isn’t a big concern.  Steve Cook of Real Estate Economy Watch points out that total housing inventory is at a 7.8-month supply, slightly up, but overall way down over 1 year ago.  ‘The huge shadow inventory of 1.7 to 7 million properties first forecast more than a year ago has yet to materialize-and may be a myth,’ said Cook recently in a blog post challenging the shadow inventory concerns.  I tend to agree.  Although my credentials aren’t as serious as Standard & Poor’s rating system, there is great pressure on the banks to work with owners to work out, modify, short sell, or salvage these loans in some way.  Side note; a friend of mine recently modified his loan from 7% to 2% for the next 5 years and had his payment sliced in half.  The odds of him paying this back are good.  Market absorption is continuing to happen as well.  In my market, Memphis, inventories are down 30% from the peak, so it’s hard to comprehend prices dropping much further.”

From the Mysterious Flying Miser:
Ben Jones of the Housing Bubble Blog will be in Washington, DC late June 2010.  He plans on making a visit to his elected representative while there.  To help his case, he is asking that HBB readers write letters describing how the shadow inventory is hurting them.  Letters can be e-mailed to Mr. Jones, and he will deliver them in person.  He also seeks input from HBB readers on possible ways to communicate this issue most effectively.