The Housing Bubble

The Chicago Tribune reports from Illinois. “The residential real estate industry is bracing for more complications and the potential for collapsed sales agreements because of global credit crunch fears. Last week, North Side broker Beth Ryan said a seller she represents accepted $25,000 less for his $500,000 house after another offer fell through when the would-be buyer was shut out of a mortgage.”

“‘Their credit score was 580 and, as of last Tuesday, their broker said they could have gotten a loan approved for 3 percent down,’ Ryan said. ‘But then standards tightened and he said no one would touch that deal.’”

“‘If you have [a preapproval] from last week, you can rip that up’ because conditions are changing daily, said mortgage broker Kit Mueller.”

“Chase, Chicago’s biggest bank by deposit market share, said last month it has seen a rise in delinquencies in home-equity loans.”

“‘We tightened up underwriting standards,’ Chief Financial Officer Michael Cavanagh said in a conference call. That includes raising minimum FICO score requirements, taking a closer look at loans that allow for less-documented finances, and lowering loan-to-value maximums.”

“Barton Pitts, president of Professional Mortgage Partners in Downers Grove, said the bankruptcy announcement of American Home Mortgage Investment Corp. this month changed the picture for jumbo loan borrowers.”

“When American Home went under, Wells Fargo said it was raising its rates dramatically on jumbo-fixed loans, by about a point and a half, from say 6 1/2 percent to 8 percent.”

“‘That shook up the jumbo markets. Everybody was saying, ‘What does Wells Fargo know that we don’t know?’ Pitts said. ‘The other traditional lenders said, ‘We’re out of here.’”

The Daily Herald from Illinois. “The number of homes and condominiums sold during the second quarter continued to slide in the Chicago region, according to a report released Tuesday by the Illinois Association of Realtors.”

“In the Chicago metro region, total home sales were down 19 percent to 29,061 compared to 35,889 last year. The toughest hit was Lake and McHenry counties, which had 25 percent drops this year compared to about 7 percent drops in the second quarter last year.”

“The crisis in the subprime mortgage industry has forced many lenders to strengthen requirements on who gets mortgages, said Marve Stockert, executive director of the Illinois Association of Mortgage Brokers in Lombard.”

“‘Those people with questionable credit scores are now having a tougher time getting mortgages,’ Stockert said. ‘Their options are quite limited now. Some lenders are looking for higher scores and other requirements. So the longer it’s a buyer’s market, the longer those houses will sit there.’”

From Quad Cites Online in Illinois. “Across the country, lenders large and small are pulling in the welcome mats for those borrowers with less than perfect credit. ‘What I see happening out there is mortgage lending was loosened a lot,’ said Kristal Schaefer, a mortgage loan officer at Quad City Bank and Trust Company. ‘That made it easier for people with credit issues. The sub prime industry came in and said, ‘We’ll take those loans. Not a problem.’”

“‘It’s bad,’ Ms. Schaefer said. ‘I’ve had people come to my desk, and they break down and cry. They’re frustrated. They were either given bad advice from a previous lender or bit off too much.’”

“The new figures from the National Association of Realtors underscored the severity of the current housing slump, the worst downturn in 16 years.”

“The median price in the Davenport-Moline-Rock Island statistical area was down 11.3% from the second quarter of 2006 to the second quarter of 2007, according to the report. The spring 2007 median price was $103,000, versus 116,500 in spring 2006.”

“The median home price for Davenport-Moline-Rock Island was $107,800 in 2004; $117,900 in 2005; and $119,700 in 2006.”

The Journal Sentinel from Wisconsin. “Wisconsin’s foreclosure miseries deepened in July, new figures show. Creditors brought 1,662 new court actions against defaulting homeowners last month - 38% more than a year earlier, ForeclosuresWI.com reported Tuesday.”

“That brings this year’s toll of families facing loss of their homes to 10,891 - 25% more than the first seven months of last year. ‘The foreclosure business is booming,’ company President Robert Jansen said.”

“Wisconsin’s problems echo the nation’s, as aggressive lending practices during the 2001-’05 housing boom backfire. People are trapped by increases in adjustable-rate mortgages, tougher standards in the humbled mortgage industry and a dearth of buyers in an inventory-glutted housing market, Jansen said.”

The Capital Times from Wisconsin. “Homeowners with for sale signs in their front yards may be starting to get nervous as weeks go by without a sale, but many local real estate experts maintain the local market isn’t as bad as it’s made out to be.”

“Agape Hammond wishes the balance would tip a bit more in her favor. She and her husband put their home on Madison’s for-sale-by-owner Web site in April. Hammond said she realizes it’s not a good time to sell, but they had no choice. The couple and their baby are preparing to move into a bigger house owned by family members.”

“‘There are so many reports out there that say we are in the biggest slump since the 1950s. No, I don’t think it’s the best time,’ Hammond said.”

“‘It seems like people are really out there looking. There are just as many people interested, maybe, in buying, but they are looking a lot longer, because they are so hesitant to buy because of the market being iffy the way it is,’ she said.”

“They’ve already reduced the price by $5,000 to $214,900. She said they get a lot of people coming by to look, but she gets the sense that they are also looking at 20 other houses and in the end may not buy at all.”

“‘People are being really picky right now,’ she said. ‘There used to be a time when people looked at buying a house as a really good investment and a stepping stone to the next level, and now they are kind of looking at it as this is where I have to stay for the next 10 years.’”

“The number of properties offered for sale now in Dane County are considerably more than they were in 2005. In June of 2005, there were 3,000 active listings that hadn’t sold. In June 2007, there were 5,400.”

“Robert Verhelst’s 2,100-square-foot house has three bedrooms, two bathrooms, and he and his wife, Krista, are asking $239,000. They have done well with open houses and have had two offers, both below what they were looking for.”

“‘I think people are thinking, since there are so many houses on the market right now, that houses will go for lower than the value of the house,’ Robert Verhelst said.”

“Sheridan Glen, who manages First Weber’s Capitol office, is also seeing buyers driving for low prices. It used to be, particularly on new construction, that the price was the price and that was it, Glen said.”

“Now, virtually everybody who has new condos for sale downtown is having to be flexible on price and be willing to negotiate…or just simply reduce the price. ‘Those things are all on the table now and they weren ‘t a year and a half ago,’ he said.”

“In the current marketplace, anyone who has owned a condo downtown for less than three years is unlikely to see it appreciate above what the purchase price was three years ago, Glen said, noting that there is a good chance that they won’t break even after paying real estate commissions. ‘I’m telling my clients that if you don’t have to sell, don ‘t sell.’”

The Star Tribune from Minnesota. “In Minnesota, spillover from Wall Street’s difficulties is likely to be compounded by recent changes in state law aimed at protecting consumers against unscrupulous lenders and expensive, exotic mortgages. While those changes, which went into effect Aug. 1.”

“‘We’re in the eye of the storm,’ said mortgage banker Ronny Loew, who thinks the situation could get worse before it gets better. ‘Underwriting guidelines are changing fast and furious.’”

“Deb Greene, president of the Minneapolis Area Association of Realtors, is optimistic that the mortgage market troubles aren’t deep enough to affect the broader housing market. ‘We’re in our recovery,’ Greene said. ‘It’s a U-shaped recovery and I don’t think we’ve totally hit bottom yet, but we are on our way up.’”

From Minnesota Public Radio. “Joe and Pam Sutton have lived on this hobby ranch in rural Hubbard County for seven years. They built the home themselves. For a while, times were good for the Suttons. Joe had plenty of work as a self-employed construction contractor. But Joe says the housing market took a dive a few years ago.”

“The couple put their house up for sale in 2004, but even at a drastically-reduced price, they couldn’t find a buyer. Joe says things came to a head about a year ago.”

“The bank foreclosed on the house this summer; the Suttons have to be out in six months. Pam says their credit will be ruined for awhile and they’ll probably have to rent until they get back on their feet.”

“Experts say the Sutton’s story is being repeated across the state at an alarming rate. The new study from the Greater Minnesota Housing Fund shows there were more than 11,000 foreclosures statewide last year, nearly double what was previously reported by a national study.”

“‘The part that is of major concern is that we see a trend that is increasing fairly dramatically. And we don’t really know right now what the future holds if you go out a year or two from now,’ says Tim Flathers, with the Headwaters Regional Development Commission in Bemidji. ‘Are we just at the tip of the iceberg? I’m not sure. There could be a lot more people out there that are in a precarious situation right now.’”

The Shakopee Valley News from Minnesota. “For the last two years, home sales and prices have been in relative decline for the Twin Cities housing market. Like 24 of the previous 25 months, newly signed purchase agreements (pending sales) for July were below the number signed in July of the previous year—confirming that the market is still experiencing a decline in buyer activity.”

“‘Make no mistake, our market is still in decline and the correction must hit bottom and rebuild before we see any signs of bouncing back,’ said Deb Greene, president of MAAR.”

“‘Sellers need to understand that they aren’t just competing with the home for sale down the street,’ said Greene. ‘With almost nine houses on the market for every buyer, the competition is fierce. Sellers should carefully plan how to make their property and asking price competitive.’”

The Pioneer Press from Minnesota. “Summer vacations and weekend getaways up north didn’t help sluggish Twin Cities home sales last month. Closed sales fell 7 percent in July from the same period last year.”

“Inventory of existing homes for sale continues to be at a record high in the metro area, with nearly 11 percent more houses for sale, or 34,722 overall. In this buyers’ market, there are 8.57 houses on the market per buyer currently versus 6.65 last year and 3.68 in 2005, according to the Minneapolis Area Association of Realtors.”

“Meanwhile, the new construction market remains in a bust. This week, the Builders Association of the Twin Cities reported 440 building permits issued in July, a five-year low.”

“As for sellers, agent Brad Palecek divides his 25 listings into two camps. In one are sellers so motivated that they’ll check out competition, do repairs and drop their prices as needed. In the other are sellers willing to keep their houses on the market for months rather than changing strategy. Now he’s getting choosier about houses he lists.”

“‘The burden is really falling into the sellers’ laps to make sure their houses are priced competitively, that they can show their home competitively, because this is not the market for unrealistic sellers,’ Palecek said.”