The Housing Bubble

A weekend topic starting with the Holland Sentinel in Michigan. “With inventory down and the number of buyers on the rise, the West Michigan housing market continues to remain red hot heading into the middle of the summer. Briana Beyer, local realtor for Coldwell Banker Schmidt, said that for her clients, it is currently a blitz to be the first through the house and from there, it is generally about putting in an offer over the asking price while also adding different stipulations to the offer to sweeten the pot. ‘It is a wild market to be honest,’ Beyer said. ‘If you are a buyer and you are not able to see that home in the first or second day, you have no chance.’”

“When looking to buy homes in the under $200,000 range, both Beyer and real estate broker Dave DeYoung, also of Coldwell Banker Schmidt, said they use tactics like asking above asking price, waving the appraisal, making cash offers and in extreme cases waving the inspection just to help clients improve offers. ‘If you can’t use cash, you have to be creative when you write up and offer,’ Beyer said. ‘You have to word things and have the correct verbiage. Some people are foregoing appraisals. … Even some, and I don’t recommend this but some are doing no inspections. People will accept the house as is.’”

“The tricky thing is that although the market is hot right now and has been for a period of time now, there is no way to tell how long it will remain the way it is. ‘There has been talk that we are on a bubble and how we don’t know how long this will last and how high prices can get but all we know is that it is strong right now, it is a good time to buy and it is a good time to sell,’ Beyer said. ‘Last year, it kind of felt like we were going on a bubble and yet we are still here. It’s hard to say and it’s hard to predict.’”

From the Dallas Morning News in Texas. “Dallas-Fort Worth is one of the markets with record-high home costs. Home prices are rising to the point that there’s a lot more talk about another housing bubble. CoreLogic surveyed long-term home price trends in 390 U.S. markets. ‘What we found in our most recent calculation is that 32 percent of these metros look a little bit overheated — a little bit frothy,’ Frank Nothaft, chief economist with CoreLogic said. ‘The last time [it was 32 percent] was 15 years ago, during the in the spring of 2003. We know how that story turned out.’”

“Nationwide home prices are almost 7 percent higher than a year ago. And the average long-term mortgage cost has risen by seven tenths of a percentage point interest compared with this time in 2017, according to CoreLogic. ‘That translates into a 16 percent increase in the monthly principal and interest payments to buy the same house,’ Nothaft told a meeting of the National Association of Real Estate Editors. Nothaft said the prices on lower-cost homes are rising even faster than the overall market — up almost 9.3 percent year over year — along with higher mortgage rates. ‘That’s a 19 percent increase in the principal and interest payment in just one year,’ he said.”

“D-FW is one of the U.S. markets CoreLogic thinks is overvalued for home prices. However, Nothaft doesn’t think there is a nationwide price bubble yet. ‘But if we continue to see relatively rapid growth of home prices over the next few years, then we might be entering a period when home prices can no longer be sustained,’ he said.”

From the Lima Charlie News. “Effective July 1st, Freedom Mortgage, one of the largest U.S. home lenders, will be unable to make loans insured by the Department of Veterans Affairs. This restriction is part of a crack down on ‘loan churning,’ a practice of convincing veterans to refinance by barraging them with mortgage-refinance solicitations. This predatory behavior includes tried-and-true scams like using teaser rates and zero-down offers to tempt veterans into variable rate mortgages, as well as more creative ploys like disguising marketing materials to make them appear to be communications from the Department of Defense.”

“Freedom Mortgage is a nonbank lender, a.k.a. an independent mortgage company, that can lend funds with an added margin for profit because it has its own source of funds and is not a bank. Before the mortgage meltdown, nonbank lenders comprised just 19% of the U.S. mortgage market in 2007. However, just over ten years later, these self-styled lenders now make up over half of U.S. home loans. The reason for this expansion is that nonbanks are not subject to the array of regulations issued by the federal government and the Federal Reserve in the aftermath of the financial crisis. They are instead regulated at the state level.”

“Wall Street is also getting in on the action, funneling $345 billion to nonbanks between 2010 and 2017. Nonbanks like Freedom Mortgage rely on U.S. taxpayers for 80% of their mortgages through Ginnie Mae — a government-owned company established in 1968 to help people afford home ownership. Ginnie Mae issues mortgage backed securities as bonds to the market, which investors can then purchase. Then Ginnie Mae takes the money invested and loans it to businesses like Freedom Mortgage. Freedom Mortgage can issue mortgages, which are backed through Ginnie Mae with, unlike similar mortgages issued by Fannie Mae and Freddie Mac, the ‘full faith and credit of the United States.’”

“‘We have depended on sheer luck,’ said then Ginnie Mae President Ted Tozer when describing Ginnie Mae operations at a business summit. ‘Luck that the economy does not fall into recession and increase mortgage delinquencies. Luck that our independent mortgage bankers remain able to access their lines of credit. And luck that nothing critical falls through the cracks…’”

“The FHA was administered by Acting Commissioner Dana Wade until last month. Late in April, she testified in a hearing before the U.S. House of Representatives, and warned of ‘certain trends and indicators of potential defaults.’ She warned of increasing mortgage delinquency among FHA-insured borrowers, increases in the percentage of borrowers spending over 50% of their income on their mortgages, and increasing levels of debt for these borrowers, all of which are outlined in a March report by the FHA.”

“The American Enterprise Institute report highlights how the other safeguard for the taxpayer, a requirement that those seeking home loans pay 3.5% of the home’s purchase price up front, is breaking down. ‘It is stunning that the median dollars of down payment for FHA purchase loans has declined from $4,000 in January 2013 to $3,900 in January 2018, while the median sales price has increased by 24% over the same period,’ said Edward Pinto, co-director of the American Enterprise Institute’s Center on Housing Markets and Finance.”

From KPTV in Oregon. “Residents in a quiet Tigard neighborhood say they are frustrated after a drug house was bailed out of foreclosure by the state. In the past five years, police say they have responded to nearly 600 calls at the home on Southwest Gentle Woods Drive, and have seized hundreds of syringes and prescription drugs. In last few weeks, there have been two police calls to the home. Tigard police say officers raided the house twice in the past eight years and recovered everything from ecstasy and heroin to hundreds of syringes and prescription drugs.”

“Within the last three years, police confirm they’ve made at least 16 arrests at the home for outstanding warrants. The home recently went into foreclosure, but the state bailed it out, according to a spokesman from Oregon Housing and Community Services. The spokesman says the homeowner received help through the Hardest Hit Fund program, which has been helping families since 2010. The state is not required to do a background check. A spokesman says if federal agencies were to conduct more thorough criminal screenings, it could fall under fair housing issues and discriminate against communities of color and keep minorities from owning homes.”

“FOX 12 spoke with a woman who lives at the home about the abatement plan, to give them a chance to voice their side of the story. ‘Oh, that’s been taken care of,’ she said. ‘Everything has already been taken care of, there’s a little bit of a misconception in the neighborhood as to the reality of the situation.’ Neighbors don’t necessarily agree. ‘A misconception about what?’ Charlotte Haines said. ‘It’s very obvious.’”

The Press Democrat in California. “Home prices rose to new highs in Sonoma County in May, when the median hit a record $692,250, but there are indications the unrelenting price increases may be starting to test buyers’ limits. Over the past six years, the median price has more than doubled, climbing from $329,000 in May 2012. Last month, the median jumped nearly 11 percent, compared to a year ago. Before the crash, the median price hit a high of $619,000 in August 2005, then plunged to a low of $305,000 in February 2009. The 2005 high wasn’t surpassed until March 2017, when the median hit $635,000. New record prices since have been set six more times — before May, the most recent occasion was in February at $689,000.”

“Bill Facendini, president and broker of Terra Firma Global Partners in Santa Rosa, said in the past three months a significant number of sellers have reduced prices of properties after failing to initially land buyers. Sellers typically try to keep raising prices above what their neighbors obtained in recent sales, he said. But buyers these days seem less inclined to pay the higher amounts. ‘They don’t feel that need right now,’ Facendini said. He called it a sign that the market is in transition and price appreciation could slow, if not level off.”

“Lisa Thomas, an agent with Pacific Union in Santa Rosa, said buyers seem more cautious about overpaying. Also, those that have been looking since winter now have more choices, as additional homes have come to market this spring.”

From Inside NOVA in Virginia. “Sellers and prospective buyers at times had a difficult mating ritual in May across the Northern Virginia real estate market, with the result being a year-over-year decline in overall sales. One trend popping up across the region? Buyers are coming into the market with a ’stop-and-go mentality,’ said Gary Lange, managing broker of the Vienna office of Weichert, Realtors.”

“Clients are ‘hot and heavy’ when they begin the search for a new home, then go cold quickly, Lange said. ‘Some of that may be due to a lack of inventory, they are looking for a deal, or they just don’t have a serious need to buy,’ Lange said. That lack of inventory created a feeding frenzy earlier in the year, but the dynamics are changing slightly, with cases of buyers’ remorse impacting the market.”

“‘Sometimes buyers have successfully bid for a home, then realize the home really isn’t for them or they paid to much,’ Lange said. ‘It is easy to get caught up in the moment when a buyer makes a hasty decision about a home for fear of losing that opportunity.’”

“Buyers feeling trapped after signing a purchase agreement at times have been backing out over minor home-inspection issues, said Lange, who suggested those in the industry needed to step in and have all parties focus on the big picture. ‘Agents must counsel buyers and sellers about the way the housing market works,’ he said.”