The Housing Bubble

It’s Friday desk clearing time for this blogger. “The recent surge is U.S. home prices has market watchers and money managers already playing defense to deter the notion that the market is entering another bubble. ‘You’ve still got decreased supply and increasing demand, and the values are still incredibly affordable by historic standards,’ said Brad McMillan, chief investment officer at Commonwealth Financial Network. ‘We’re probably in the third inning of this recovery, but there’s no reason to believe we’re in a bubble right now.’”

“According to Mr. McMillan, low interest rates — courtesy of the Federal Reserve — remain one of the most powerful forces driving the housing market rebound. ‘When the price of housing gets so high that an average family can’t afford to buy a house, that’s a bubble,’ he said. ‘Right now, mortgages are lower than rents in most places, and the average family can afford two homes.’”

“At a recent open house in Glassell Park, a neighborhood in northeast Los Angeles, curious buyers and neighbors streamed into a green stucco house that had just come onto the market. Michael Delacruz is one of the real estate investors from Dossier Capital, the group hoping to sell this house. He says it was purchased a few months ago in a short sale. Records show Dossier Capital bought it for $390,000. It’s now listed for more than $720,000.”

“‘Typically, our houses are in escrow first week,’ Delacruz says, ‘maybe even the first day that it’s listed.’”

“The successful return of Home Flipping in California is indicative of the housing market’s recovery. In California alone, 6,000 homes were reportedly flipped between January and April of this year. ‘Flippers can be anybody,’ said Troop Real Estate’s Robin Karcich. ‘It’s for anybody who wants to take the chance, and jump in and go ahead and do it.’”

“Some real-estate experts think flippers could quickly get swamped in a market that is still prone to shocks. ‘They’re a real concern to me,” says Stan Humphries, chief economist at Zillow. ‘They create volatility and make prices go up more than they should. And it’s usually the less sophisticated participants who get hurt the most. The most successful flippers will probably be those who recognize the formation of new bubbles and get out before they burst. ‘Flipping is like a Ponzi scheme,’ says Humphries. ‘It’s not a bad idea for those who get into it first, it’s a bad idea for those who get into it late.’”

“Lex Levinrad, head of the Distressed Real Estate Institute in Boca Raton, said he recently bid $52,000 for a three-bedroom Lauderdale Lakes home listed for $36,000. But his offer was rejected because there were other buyers willing to pay more. Levinrad’s club is hosting an event this weekend to teach investors how to buy foreclosed homes, and he expects the lack of inventory to be a main topic of discussion. ‘There are so many bidders, and they’re swarming over every property,’ Levinrad said. ‘Even if banks have hundreds of homes in a ZIP code, they’re only trickling out one at a time.’”

“Lenders are being deliberate because they aren’t getting any pressure from regulators to sell their distressed real estate, said Mike Larson, a housing analyst at Weiss Research in Jupiter. At first, banks were taking their time to prevent big price declines, Larson said. But as the market improved, lenders decided that delaying sales would help prices rise and boost their bottom lines. ‘It’s not really in the banks’ own best interest to dump this stuff,’ Larson said.”

“The federal government is getting a return on its investment. The return on some of the financial industry bailout money comes in the form of dividends from mortgage servicing firms Fannie Mae and Freddie Mac. Earlier in May, Fannie Mae announced a record annual profit for 2012 and plans to send the U.S. Treasury Department a dividend check for $59.4 billion. Freddie Mac said it will send the Treasury $7 billion.”

“The financial giants remain state-run today despite an improving housing market and record profits. It may even be the case that the housing market is overextended. Perhaps the government itself is fueling another housing bubble.”

“The government also keeps a big stake in the banking industry despite growing profits. More than four years after the financial crisis the government can’t seem to get out of the banking business. U.S. taxpayers have an equity interest in more than 150 banks. The Federal Deposit Insurance Corporation reports that U.S. commercial banks as a group earned more than $130 billion in 2012, an 18 percent increase over 2011. But all is not equal in the banking industry. More than 92 percent of the industry’s profits go to only 9 percent of the institutions.”

“Testifying before Congress this month, Stanford economist John Taylor pointed out that under Dodd-Frank, big banks appear ‘to be enjoying a huge subsidy on their borrowing costs due to market expectations of bailouts. This expectation of bailout of some creditors increases the risk of financial instability.’”

“Rising prices are a big nothingburger. They just mean that more yield-crazed speculators are scavenging the market looking for their next big killing.”

“The banks have been playing hide-n-seek for the last 4 years. That’s what the phony mortgage modification programs were all about; helping the big lenders extend and pretend while they recapitalized. Take a look at this: ‘Housing industry leaders and congressional lawmakers are ramping up their push for regulators to resolve a residential mortgage rule without placing strict down payment requirements on borrowers. Bankers, real estate agents, home builders and lawmakers got a renewed jolt after President Obama’s State of the Union address to press their point that new rules determining a borrower’s ability to repay a loan will be the central consideration for obtaining a mortgage.’”

“Obama’s blundering mortgage modification fiasco, dubbed HAMP, was actually a sop to Wall Street. The program was designed as a holding tank for underwater borrowers. Here’s a brief update on the program: ‘As of March 31, 2013, the oldest HAMP permanent modifications, from the third and fourth quarter of 2009, are redefaulting at a rate of 46.1 percent and 39.1 percent…”

“46 percent default rate. That’s worse than subprime. Hell, that’s worse than any batch of loans in history. But, that’s okay, because it’s good for the banks, and that’s what matters to Obama. And, guess what? Now Obama is planning to surpass his own record of failure by launching another bank welfare program more idiotic than the last. He’s given the green light to ‘no documentation’ loans for borrowers who haven’t made a payment on their mortgage in two years.”

“After five years of unemployment, government deficits and financial struggle, every American wants to call it a recovery. That’s why some optimistic economic data this week seem to have messianic importance. But if evil has one power, it is the power of illusion, to mask reality. And, in this case, that is also the power of the positive economic data.”

“The idea of a strengthening recovery is out of step with some bubblicious activity, including the dubious and sudden rise in housing prices. However, the sources of that rise - as with all sudden booms - are dubious. While house prices are rising, incomes, purchasing power and lending are not keeping up.”

“Still, why should we question good news? Even if a recovery is made of vapor, it can make people feel good. So why not believe in a recovery if it makes us feel better? The reason to maintain skepticism of good times a-coming is that an economic recovery can – and is – used to package a lot of political snake oil. As long as people believe in a recovery, Congress can keep ignoring the unemployment and equality crises and enjoy ginning up imaginary problems. If Americans believe in a recovery, CEOs can keep claiming that they don’t need to invest in the United States or hire American workers.”

“A mythical recovery gives cover to a lot of irresponsible people hoping that Americans won’t look behind the curtain. There is a momentary discomfort in realizing that the recovery is weak. When the absurd illusion of a ‘better economy’ is gone, lawmakers and CEOs may be forced to stop believing in the myth of a good economy and actually start working to create the reality of it.”

“A key element of asset bubbles is that the primary impetus of irrational money chasing too few assets is always recognized. Pretty soon real measures of value are assigned as reasons for increased asset prices - say for example in the Internet bubble era: folk started going for top-line revenues as the key measure on the logic that while these companies were losing money initially they would eventually turn around as long as the top line grew. Then any improvement in the top line whether by organic means or acquisition was hailed as evidence of the investment thesis and so on.”

“Perhaps the worst of all the bubbles though is in the former tier 2 and tier 3 cities in the US where house flipping is back on. The treatment of housing stock as a trading good has potentially serious consequences for longer-term investments, as well as the systemic risk of US banks. This then is the worst of all the unintended effects of central bank involvement in the markets; instead of ushering in investors who could help turn around economies, the central banks have created a class of traders who roil asset prices, maximize leverage, but produce no lasting benefits for the underlying economies. Ironically such rising asset prices also make it more difficult for engendering a real economic recovery.”

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A report from The Street. “National home prices are still about 20% below their June 2006 peak, but in Texas home prices are now at a new peak, according to data from Lender Processing Services. Despite soaring home prices in Arizona and California, home prices in Arizona are still down 35% from their May 2006 peak, while in California, home prices are nearly 32% below the April 2006 peak. Colorado is another state that is very close to its previous peak with home prices just 0.7% off June 2007 highs. The housing market in Denver is at a new peak.”

The Denver Magazine in Colorado. “Not long ago, real estate in Denver was in the weeds. In January 2009, the average home price in the Mile High City hovered around $225,000, a 30 percent drop from the market’s peak in June 2007. Homes listed on the lower end were hit even harder, dipping by closer to 40 percent. But this grim picture is now history. The catch? Per capita, there have never been fewer homes for sale in Denver. Why potential sellers aren’t selling is anyone’s guess. This is, of course, a potentially lucrative situation if you’re in the latter camp. ‘We probably have the strongest seller’s market we’ve ever had,’ says Charles Roberts, co-owner of Denver’s Your Castle Real Estate.”

“If would-be sellers realize how good the market is for them right now, come summer, Denver housing should see solid prices, quality buyers, and a healthy inventory. If the number of available properties remains low, however, bidding wars could inflate prices across the Front Range and once again create skyrocketing appreciation rates. For now, forget all that. If you’ve put off even thinking about selling your home since the market crashed, it’s time to focus, strategize, and (hopefully) capitalize on this seller’s utopia.”

The Denver Business Journal in Colorado. “Wells Fargo & Co. and JPMorgan Chase & Co. — two of Colorado’s biggest banks — have nearly halted foreclosure sales after federal regulators revised orders on how troubled borrowers were to be treated before losing their homes. Citibank Inc. is another big lender that has greatly slowed sales of homes in foreclosure, the Los Angeles Times reports.”

The Salt Lake Tribune in Utah. “With Utah’s recovery from the recession outpacing the nation, would-be homebuyers returning to the housing market are stepping into the best interest rate environment in memory. But choose sooner than later or run the risk of losing the best mortgage rate. ‘Over the last week, our interest rates have gone up 0.375 points for a 30-year loan, so you can lose by shopping around too much,’ said Chris Bennett, a mortgage consultant in Midvale. ‘Don’t spend two weeks looking. Spend a couple of days and then make a decision.’”

“Think before refinancing to a 15-year loan. Over the past 12 months, the rate for a 15-year loan has slowly fallen, from slightly more than 3 percent to as low as 2.6 percent in January before starting a gradual rise to 2.8 percent today. To many people, rates that low are ‘free’ money. There is a risk, though, said Tim Roberts, a senior loan officer at Bank of Utah. ‘I’ve helped somebody refinance to a 15-year mortgage [from a 30-year loan], and six months later they came back and said they can’t afford it,’ Roberts said.”

From KTAR in Arizona. “The latest Case-Shiller home price index showed that home prices in the Phoenix area jumped by 22.5 percent in the past year. Diane Brennan, host of ‘That Real Estate Show’ on KTAR, said said some areas of the Valley have home prices that are rising much faster than that 22.5 percent figure. ‘It might be 22 percent on average, but we’ve seen some places jump 100 percent in some of the hardest hit areas,’ she said, adding that those areas include south Phoenix, Queen Creek, San Tan Valley and other outlying areas.”

“Brennan does not believe in predictions that Phoenix is in a second housing “bubble” that is about to burst. ‘I think that ‘other bubble’ is a bunch of malarkey,’ she said. ‘I think those people who are panicking and calling doomsday again is unfounded.’”

From Fox 5 Vegas in Nevada. “Buying a home in southern Nevada is like grabbing a bite to eat. ‘The greatest part is that when you used to go to a restaurant last year, you used to walk in and eat. Now if you don’t get a reservation, you are waiting in a line,’ said Dave Tina, president of the Greater Las Vegas Association of Realtors. ‘With low interest rates at 3.5, everybody bought and we created an inventory shortage.’”

“‘There is a lot if competition out there among home buyers. There are investors trying to make profit from flipping a house or putting it up for lease and first time home buyers have to compete with that,’ said Luis Lopez, data analyst for UNLV’s Lead Institute of Real Estate Studies.”

The Las Vegas Sun in Nevada. “Las Vegas builders continue to sell homes at a faster clip than last year as they pull more permits and buy land at higher prices. The price per acre of raw land in prime locations has more than doubled in the past six months to the $350,000 to $400,000 range, according to Home Builders Research President Dennis Smith, who reported in March that land prices were rising at an unsustainable and ‘downright scary’ pace.”

“The median sales price last month was $238,820, up 19 percent from a year earlier. Given the valley’s rising land prices, ‘it would be foolish’ to think the median sales price of new houses won’t reach $250,000 by year’s end, Smith said in the report. ‘This housing recovery has a LONG way to reach levels that were considered the ‘norm’ not too long ago,’ he wrote.”

“Lobbyists representing investors, debt collectors, property management companies, real estate firms and banks large and small have been discussing legislation that could result in higher association dues for homeowners and changes to who pays the lien on foreclosed homes in a neighborhood. The negotiations essentially consist of what HOAs could or should be allowed to do when it comes to homeowners who stop paying their dues and how much HOAs can collect from the proceeds a bank eventually earns once a foreclosed property is sold.”

“This longstanding battle has carried over from the 2011 legislative session, when legislators nearly reached agreement about who pays for debt collection costs on delinquent HOA dues once a house is foreclosed on, said Michael Buckley, real estate attorney and former commissioner on the Nevada Commission on Common Interest Communities.”

“‘It’s a mess because banks are taking so long to foreclose,’ Buckley said.”

From 8 News Now in Nevada. “According to the Nevada Real Estate Division, HOAs foreclosed on nearly 650 homeowners last year, an increase from 2011 of more than 250 percent. Paul Terry, an attorney for a law firm that represents homeowner’s associations explains the increase in HOA foreclosures with the decrease, or near halt, of bank foreclosures. ‘Before the economic crisis, we almost never foreclosed on anybody’s house,’ Terry said. ‘The thing that’s driving this is that it takes the banks so long to foreclose that the HOA and the homeowners don’t really have much choice but to proceed, or start writing bigger checks every month.’”

“It happened to Venise Abelard and hundreds of others who once thought the only thing they had to fear was their bank. A notice of sale taped to her door that informed her that her homeowner’s association planned to sell her house in 30 days, unless she paid some $4,000. ‘I was surprised, because I didn’t know I owe anyone,’ she said.”

“Abelard insists she was current on her $56 a month payments to the Fort Apache Square HOA. So she gathered years of canceled checks and bank statements to make her case. But her evidence failed to convince the HOA’s law firm. In July of last year, she awoke to another notice on the door. This one said her house had been sold and she had three days to move out. ‘I just dropped and sat down on the stairs here,’ she said. ‘I said, ‘OK, I have three days to vacate my home. I still, you know, didn’t get it.’”

“For now, Abelard remains in her home. And although she doesn’t own it, the mortgage is still in her name. ‘It’s a mess,’ Abelard said. ‘I don’t understand it myself.’”

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The Glendale News Press reports from California. “The real estate market in Glendale ticked upward again last month after a brief stall in March, reflecting an ongoing limited number of homes for sale and a multitude of potential buyers, according to the latest real estate report. Realtor Anne McDonald said that Realtors aren’t sure why more sellers aren’t taking advantage of the tight market. ‘We’re speculating that sellers are kind of waiting for prices to go up for a little bit before putting their house on the market,’ she said.”

“Despite the fact that sellers are getting multiple offers on their listings and the continued increase in prices, McDonald said she didn’t think any trouble is brewing in the market. ‘I don’t think we’re really heading for a bubble right now. Right now, it’s just kind of correcting itself,’ she said, adding the market is not where it was in 2003 and 2004.”

The Wall Street Journal. “In California, the number of homes sold in recent months that had been flipped—or bought and resold within six months—has reached the highest levels since late 2005, according to PropertyRadar. The growing competition from investors is unwelcome news for ordinary buyers. After waiting years for prices to hit bottom, ‘buyers are jumping in before prices bounce so high they can’t afford it,’ said Christine Donovan, a real-estate agent in Costa Mesa, Calif.”

The Santa Ynez Valley News. “On April 19, after renting in Los Alamos for two years, Cliff and Rowena Chapman closed escrow on their Orcutt home. ‘We feel that the interest rates are still low and, we’ve been watching the news, we feel the housing market is starting to turn. We think housing prices are going to march up,’ said Cliff Chapman.”

The Santa Cruz Sentinel. “Buyers are snapping at new offerings like hungry fish. Of the 143 sales, 23 were on the market for seven days or less. That includes seven for zero days, indicating the house sold within 24 hours or was a ‘pocket listing,’ where the agent did not post the listing on the MLS. ‘This is becoming more common as the market becomes increasingly competitive,’ said Jim Harrison, MLS Listings chief executive officer, noting 12 percent of last year’s sales in Santa Cruz County were pocket listings.”

“In some neighborhoods, home values are spiking up so fast appraisals have yet to catch up. The owners of 5 Cabernet Court in in Scotts Valley listed their four-bedroom home for $899,000 and got five offers, most of them local. The buyers paid $953,000. ‘They paid $64,000 over the appraised value,’ said Gayle O’Neal of American Dream Realty who represented the sellers. ‘Buyers are coming in with no loan contingencies, no appraisal contingency and no inspection contingency. If it doesn’t appraise (at their offer), they’re going to have to pay the cash. It’s mind-boggling how quickly it’s changed,’ she said. ‘You have to educate buyers and have them ready to go. You have to write the offer that day. It won’t be there tomorrow’”

“A two-bedroom home in Capitola was on the market for 277 days before it sold for $850,000. Judy Brose, the seller’s agent, said the house went into escrow twice without closing when buyers had second thoughts. That skittishness seems so last year.”

The Mercury News. “Despite increasing prices, many homeowners still have low levels of equity and aren’t willing to sell, Zillow said. A homeowner would need about 20 percent equity to put a house on the market and cover a down payment on the next home, real estate fees and other expenses, said Zillow’s chief economist, Stan Humphries. Many homes have moved back ‘above water’ — a home is underwater when it is worth less than the amount of its mortgage — but that isn’t enough. ‘A bunch of people don’t have the down payment for their next house,’ he said.”

“‘I have a lot of conversations with some of my clients who are wanting to break even,’ said Noreleen de Mesa, a broker in San Bruno. ‘A lot of them are still dabbling with the idea, but the majority are probably hanging on to their property, hoping the market continues the route that it’s on.’”

The Union Tribune. “The share of San Diego County borrowers who are underwater on their mortgages continues to fall due to home-price gains, says a recent analysis from real estate website Zillow. So why aren’t more homeowners freed from negative equity listing their homes in this supply-constrained market? Negative equity in the county stood at nearly 25 percent in the first quarter, down from 28 percent during the last quarter of 2012, Zillow figures show. The first quarter’s percentage translates to more than 114,000 homes with underwater mortgages, equalling $13.7 billion.”

“When crunching the share of San Diego borrowers who have less than 20 percent equity, what Zillow calls the ‘effective’ negative rate hits nearly 44 percent. ‘There two big factors distorting the market. … The first is negative equity … and the second big distortion is incredibly low interest rates,’ said Stan Humphries, Zillow’s chief economist.”

From 10 News. “The scarcity of homes for sale has led to a seller’s market in San Diego County, but is there a so-called shadow inventory of homes that could soon flood the market? Realtor Arnie Levine says many homeowners that survived the down market are reluctant to sell. ‘They figure if they wait it out, they’ll have positive equity and then they’ll sell,’ said Levine.”

“Nationwide numbers show a so-called shadow inventory lurking — some 2 million foreclosures, short sales and mortgage delinquencies that could lead to foreclosures. In San Diego County, that shadow inventory includes some 13,000 mortgages currently delinquent, according to Fitch Ratings. So if the banks don’t release the properties, what happens to them? Mark Goldman, an SDSU Real Estate lecturer, points to speculation. Banks could make more money by selling to pools of investors who would then rent out the homes. ‘I don’t think we’re going to see a sudden deluge of properties,’ said Goldman.”

The Contra Costa Times. “Millions of Americans have lost their homes, and millions more could meet the same fate. Now, a San Francisco investment firm thinks it has found a remedy and a willing partner in a Bay Area city that is no stranger to pursuing radical ideas. The idea is to use the tool of eminent domain. Under a plan now taking shape, Richmond would seize underwater mortgages and work to refinance them under terms the homeowners could afford. A report released last month by the alliance revealed that 900 Richmond families lost their homes last year and that 4,600 local homeowners were underwater on their mortgages by about $700 million.”

“Robert and Patricia Castillo bought their three-bedroom home in the North and East neighborhood in 2005 for $420,000. Today, its value recently climbed back over $200,000, but the Castillos still struggle with an $1,800-per-month mortgage payment, which is set to increase to $2,500 in 2015. Their mortgage has been passed between several servicers and lenders, and they hope they would quality for the plan.”

“‘It’s a struggle daily,’ said Robert Castillo, a diesel mechanic for the Berkeley school district. ‘Many of our neighbors have lost their homes.’”

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The Sun Sentinel reports from Florida. “Some buyers are solving their house-searching woes through prose. They’re not writing poems or romantic novels — just notes to sellers, telling them how happy they’d be to buy their homes. Writing a letter probably is one of the easiest things buyers have to do to land a home these days, said Samantha DeBianchi, a Fort Lauderdale real estate agent. Sometimes even pets are part of the deal. One of DeBianchi’s clients had to adopt the seller’s cat as part of the purchase. The client was a dog owner, but she agreed to the deal. ‘This is just how it is,’ DeBianchi said. ‘Sellers are completely in control.’”

“Rick Rapp, a real estate agent in Broward and Palm Beach counties, said a client made at least 10 offers at or above the asking price, but all were rejected for being too low. Investment firms are driving up prices by paying 20 to 25 percent higher than the list price, Rapp said. His client finally closed on a three-bedroom home for $238,000, but even that deal was in jeopardy. The seller, an investor, had a better offer and wanted out of the contract, but Rapp refused.”

“‘This reminds me of 2005,’ said Rapp, of Travers Miran Realty. ‘The bubble is coming.’”

The Miami Herald. “Jacque and Stephan McLean, who have been house-hunting near Miramar since December, have submitted five offers, all in vain. The McLeans, who are renting a home, plan to make a 20-percent down payment and get a conventional mortgage for the rest. ‘The last offer was $20,000 more than the listing price and we still didn’t get it,’ said Jacque McLean. ‘There is a lot of greed going on. We’re going right back to what happened in 2006 and 2007 in Florida.’”

The Tampa Bay Times. “‘Lots of times we run into people who already lost out on one or two deals and are now incredibly motivated to purchase,’ Keller Williams agent Lonnie Orns said. Added Re/Max Bay to Bay agent Rae Catanese: Buyers ‘can make an offer within an hour, but even that’s no guarantee.’”

“‘Every time something comes on the market and it’s decent, there’s instantly five or six other offers,’ broker Melody Stang said. ‘It’s hard for the buyers to really find a decent house. … It feels like 2003 to me, all over again.’”

The Herald Tribune. “Some contend that these investors are overpaying for their Southwest Florida holdings. Some critics contend that will come back to haunt them, or whoever ends up eventually taking ownership of these properties in the next generation of sales. ‘We have never seen hedge funds and large companies dominating the real estate market like this before,’ Jack McCabe, a real estate consultant in Deerfield Beach who correctly predicted the bust, lamented in our April report on regional home sales. ‘These companies are involved in 70 percent or more of recent sales — many of them at artificially inflated prices.’”

The News Journal. “Volusia Property Appraiser Morgan Gilreath released a rosy pre-preliminary tax roll estimate that showed the area’s property values increasing to the tune of more than $800 million this year. ‘If someone is interested in purchasing real estate in Volusia County, they’re already a little bit late,’ Gilreath said Thursday after releasing the early numbers. ‘Because the market has started to go back up. They missed the swing a little bit. If they’re interested here, they might want to talk to a Realtor ASAP.’”

“‘We still have a lot of foreclosures out there,’ he said. ‘The percentage of bank-owned transactions is about 10 percent. A typical year is about 1 percent. So we don’t have a normal market yet, and until other signs of normality start showing up, it’s not going to be a truly normal market. It’s just acting like one now.’”

“City officials would like a recount, please. They’re skeptical of Property Appraiser Mike Wells’ figures showing the property values in New Port Richey fell another 4.2 percent this past year, even as the county remained flat and a couple other cities saw an uptick in value. Wells told the Times he sticks by his numbers. The city has old and deteriorating housing stock, especially along U.S. 19, he said, and New Port Richey lost its biggest taxpayer last year when Community Hospital moved to the Medical Center of Trinity campus outside of town.”

“‘The fact of the matter is the city has very little growth right now,’ Wells added. ‘If you combine it all, that’s the reason for our assessed value.’”

The Palm Beach Post. “In Florida, the more than $1 billion Hardest Hit program has been operating for two years, awarding struggling borrowers 12 months of mortgage payments and between $18,000 and $24,000 to bring a mortgage current. But some homeowners exiting the program are finding themselves still in debt and on the same path to foreclosure after their lender subtracted legal costs from the Hardest Hit stipend. ‘Those are the credit union’s expenses, not mine,’ said Sandra Morales, about the court costs included in her arrearage by Florida Central Credit Union.”

“In 2005, after the death of her husband, Morales refinanced to a five-year balloon mortgage believing she would sell the home and downsize. Then the real estate market crashed. ‘I wish I had never done that,’ she said about her refinance.”

The Orlando Sentinel. “Orlando resident Jose Polanco considered himself lucky when he was one of the few chosen to receive mortgage assistance from Florida’s billion-dollar Hardest Hit Fund. The unemployed computer-repair technician said he is thankful the program recently began paying his $1,617-a-month mortgage. But when his slice of assistance runs out later this year or early next, he will still be left with a $350,000 mortgage on a house now worth about $190,000.”

“‘We’re looking for the bank to reduce the principal,’ said Polanco. ‘If the funds for the principal come from the Hardest Hit fund, I don’t care. If the money comes from heaven or wherever, I don’t care. Just drop down the amount to the point where it reflects the real amount that the house is worth.’”

“The unemployed father of two said he looks for jobs daily and would like to stay in his neighborhood, but it will be difficult to find a job making the kind of earnings he made back when he bought his home. At that time, at the height of the homebuying frenzy, he was selling condominiums.”

“Apparently, house flipping is once again the cool thing to do in Orlando – the clever man’s way to easy cash. RealtyTrac recently reported that last year Central Florida was the most profitable market in the country for flippers. My finely tuned sense of financial paranoia can find little good news in this. Couldn’t we all just curl up with a drink and breathe for a bit before jumping into bed with some ‘can’t-miss’ deal on a ‘cozy 3 bdr. 2 ba. with lots of potential?’ Who’s up for a little ’steady as she goes?’”

“If the Great Recession taught us anything, shouldn’t it be that house flipping is not for the faint of heart – or anyone short of disposable cash? It’s the real-estate version of golf. It looks easy when you watch it on TV, but in reality, it can claim your sanity and your fortune. Of course, it’s easy to lose sight of that when you’re drunk on home values that seem to know only one direction. And much of Central Florida was pretty snockered before the bottom fell out.”

“The upside to all this is that real-estate investors – big or small – tend to have more stomach for the risk involved. The downside is that their willingness to burn cash can cause the market to overheat. Right now, no one seems overly concerned by that because their presence has helped clear out some inventory and boost home values. But if the market is going to fully heal, we’ll have to hit that sweet spot where prices make sense, credit is available and flippers make money off solid investments, not mass delusion.”

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Readers suggested a topic on interest rates. “How much higher will thirty-year Treasury yields go up from here in the near future? And btw, in the absence of extreme intervention, long-term Treasury yields are roughly about 99% correlated with 30-year mortgages. 30-yr T-bond yields, 5/01/13 2.83, 5/23/13 3.20, + 37 bps increase over 22 days. It doesn’t look like a big deal until you run the numbers on how much somebody who bought a 30-year T-bond on 5/01/2013 had already lost by yesterday. Answer: 7.1% and growing.”

One said, “FNMA is up 892% and FMCC 822% over the last three months. Why now?”

A reply, “Of cours they’re profitable, considering that they pay nothing for the government-backed insurance that they sell to others, and have an unlimited ZIRP credit-line to draw upon if losses ever come down the pipeline. That’s like a license to steal.”

The Plain Dealer in Ohio. “The lowest mortgage interest rates may be behind us. Rates have increased each of the last few weeks and are up a quarter-point from three weeks ago, and that seems to be dampening some of the refinance bonanza. ‘Mortgage rates increased to their highest level since March last week, leading to the largest single week drop in refinance applications this year,’ said Mike Fratantoni, the Mortgage Bankers Association’s VP of research and economics. Refinance activity has dropped by 19 percent in the past two week and is at its lowest level since March.”

“Purchase volume, however, is up about 10 percent from this time last year. About 32 percent of refinance applications are for the Home Affordable Refinance Program, the government-sponsored effort to allow people to get approved for lower-interest-rate loans even if they owe more than the home is worth.”

From Yahoo Finance. “One sure sign of a housing bubble is home affordability that’s considerably worse than long-term averages. At current interest rates, which are below 4 percent for the most creditworthy borrowers, no big city stands out as having a bubble. But prices are rising by double-digit percentages in some areas, which obviously makes homes more expensive. And if mortgage rates rise to 5, 6, or 7 percent — which is quite possible once the Federal Reserve begins to tighten its loose-money policy — it would harm affordability and possibly undercut the entire housing recovery.”

“Research firm Zillow has estimated what will happen in 30 big housing markets if mortgage rates rise. If rates hit 5 percent, six of those markets will have affordability worse than historical averages, qualifying as modest bubbles. At rates of 6 percent, the list swells to 11 cities. At 7.1 percent (the long-term U.S. average), bubbles would become more pronounced, and undoubtedly problematic. As the following chart shows, bubbles would be worst in San Jose, Calif.; Los Angeles; San Diego; San Francisco; Portland, Ore.; Denver; Riverside, Calif.; Miami; Seattle; and Sacramento.”

“It’s nothing like a normal housing market. The recovery has been fueled by artificially low interest rates engineered by the Federal Reserve, and virtually all new mortgages these days are underwritten by the back-from-the-dead federal agencies Fannie Mae and Freddie Mac. Worse, more than one-quarter of all homeowners with a mortgage are still ‘underwater’ on their homes. Since those people would lose money if they sold their homes, they tend to keep them off the market, which constricts the supply of homes and pushes up prices for those that are on the market.”

“Those types of distortions are what may be causing another bubble. It may not be apparent now, but the test will be what happens if interest rates rise by 2 or 3 percentage points, which many economists think is likely during the next several years. Mortgage rates of 6 or 7 percent, compared with less than 4 percent now, would still be in the normal historical range, but they could dramatically change the equation for buyers.”

“‘No doubt you can buy a house today and get a really good price and a low-interest loan,’ Jeff Greene, president of Florida Sunshine Investments, said at the recent Milken Institute Global Conference in Los Angeles. ‘But if you want to sell that house to somebody two or three years later and he doesn’t have a 3 percent loan, how much is he going to pay for that house?’”

From Reuters on Canada. “The Bank of Canada should raise interest rates now because five years of low rates are creating distortions in the economy, such as excessive debt and an overheated housing market, a former advisor to central bank Governor Mark Carney said. Paul Masson, now a professor at the University of Toronto’s Rotman School of Management, said the central bank should tighten monetary policy to lean against asset price bubbles rather than focus exclusively on inflation.”

“‘Some of the symptoms of inefficient investment and asset price bubbles are already evident in Canada, in the housing sector for instance,’ Masson said in a paper published by the C.D. Howe Institute, a think tank. Masson said financial imbalances and risky investment decisions are spreading. In addition to the overheated housing market, he cited record-high levels of household debt. ‘The longer the boom lasts, the more likely it will end in tears,’ he wrote.”

The Otago Daily Times in New Zealand. “Flat-screen televisions, cash for groceries and even iPads - banks are competing to offer more attractive prizes to sweeten home loan deals as higher interest rates are forecast. Finance Minister Bill English yesterday warned higher interest rates were expected late this year or early next.”

“Economic commentator Bernard Hickey said similar giveaways were seen during the 2002-2007 property boom. ‘But then, the banks tended to simply use price as their main way to win market-share. This time, they are being a bit more cautious about that, mainly because they want to preserve their profit margins. The cost of such incentives were often simply added on to the mortgage, Mr Hickey said. ‘What they are doing with these offers, is essentially buying your business with your money.’”

The Advertiser in Australia. “I’ve just finished writing a song that celebrates something loved by property owners everywhere. You can sing it to the tune of O Christmas Tree or any other motivational rock anthem that you like. It goes a little somethin’ like this:”

“O interest rates, O interest rates, you’re groovy when you’re falling,
O interest rates, O interest rates, we want you to keep falling,
‘Cos 3 per cent is nice and low, but two per cent is better,
O interest rates, O interest rates, please hear our greedy calling.”

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