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.’”

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.