The Housing Bubble

The Great Falls Tribune reports from Montana. “Condo developments can be found across Great Falls, ranging in both price and age. Calvin Scott, president of the Northwest Montana Association of Realtors in Kalispell and who serves on federal and state housing boards and committees, says Montana is in the process of catching up with the rest of the nation in terms of condo developments and ownership.”

“Bob Murray Construction built the Forrest Glen condos. Now he’s working on the South Park condos. The condos range in price from about $200,000 to $300,000. When Murray started building, he didn’t have time to set up an office at the site or get brochures.”

“‘We were just snowed with customers,’ he said.”

“Murray has noticed that the Forest Glen condos have appreciated quite a bit when they go on the market. ‘The appreciation is there…in almost all of the markets because of the huge demand,’ Scott, of Kalispell, said.”

The Oregonian. “The Portland area, once a star performer in an otherwise gloomy U.S. housing market, crossed into the same dismal territory in January when home values dropped for the first time since record-keeping began in 1987, according to the Standard & Poor’s Case-Shiller report.”

“In the Portland region, home values grew by double-digit percentages for 28 straight months. Oregon, along with the rest of the country, enjoyed a historic real estate boom from 2004 to 2006. Now, both are suffering through a historic collapse.”

“Portland was aided by Californians’ continued migration north in search of affordable housing. ‘Now, of course, that’s over,’ said Mark McMullen, an Oregon-based senior economist for Moody’s Economy.com.”

“Real estate brokers Paul Johnson and Sam Purtle have seen their business in distressed home sales jump in the slowdown. ‘What we’re seeing more of is people who bought houses in 2005 or 2006,’ Johnson said of the homes in short sales.”

“Their co-worker, broker Christina Smith, is listing a home on Southwest Hart Road in Washington County for $399,500. The current owner is trying avoid foreclosure after buying his home in August 2006 for $408,500.”

“Smith listed the home Feb. 1. So far, no broker has even visited the home.”

“McMullen forecasts that sputtering home sales will help drive the state into a short, mild recession this summer. That pain, he said, will continue to hit hardest among contractors, bankers and brokers who depend on housing for a paycheck. ‘There’s an unsustainable army of these folks out there,’ he said.”

The Register Guard from Oregon. “The national housing crisis has dragged Lane County’s housing-related industries down and pushed unemployment higher, according to statistics released Monday by the Oregon Employment Department.”

“‘It has to do with the housing crisis nationally — that is probably the biggest factor,’ said Brian Rooney, the Employment Department’s regional labor economist in Eugene-Springfield. ‘Anything close to housing is down.’”

“At Eugene’s Random Lengths, a newsletter that tracks forest product markets in North America, Editor Shawn Church said current lumber prices don’t indicate any immediate relief.”

“‘What we’re seeing right now is the industry responding to a very tough period — an unprecedented period, and one that rivals the early 1980s,’ Church said. ‘I think there’s hope that the housing mess will find a bottom sometime, maybe by late 2008 or early 2009. But I think everyone is braced (for) and resigned to a slow recovery, just given the extent of housing’s burst bubble.’”

The Bend Bulletin from Oregon. “There’s both good news and bad news for prospective homebuyers in Bend, according to local real estate and mortgage professionals.”

“Tom Greene, the president of the Central Oregon Association of Realtors, said pending sales for the month of March are up significantly, driven by low interest rates, lots of inventory and a realization that the current buyer’s market won’t last forever.”

“‘Buyers are jumping off the fence,’ Greene said.”

“A Wells Fargo document released late February said that in Deschutes County and other so-called ’soft’ markets across the country, borrowers may have to put at least 10 percent down to purchase a home, compared with 5 percent in a ‘normal’ market.”

“The PMI Group Inc., a mortgage insurer based, rated Deschutes County a ‘distressed market’ in its most recent quarterly survey released March 1, meaning the company will no longer write mortgage insurance policies for mortgages with less than 10 percent down, said PMI spokeswoman Stephanie Corns.”

“Mortgage insurance is typically required by lenders when the borrower is unable to pay 20 percent of the home’s purchase price as a down payment.”

“By requiring more money down, borrowers have more equity in their homes and, as a result, more options to refinance or renegotiate their loan terms if the value of their home drops, Corns said. Lenders don’t want homeowners to foreclose, Corns added.”

“‘Call it lessons learned,’ Corns said. ‘We have really learned through the economic downturn that equity matters. Options are limited when people have no equity … when you have some equity in your home, a cushion, you have some flexibility to work with the lender and servicer, so that’s the basis of our distressed market policy.’”

The Heraldnet from Washington. “Area real estate professionals and politicians want to clear something up. Now is a good time to buy and sell real estate in Snohomish County, no matter what people may be hearing about the national market.”

“Many of the speakers, including Ron Sparks, a VP at Coldwell Banker Bain, pointed the finger of blame firmly at the media, which he said are confusing the public. Sparks compared the real estate market to the weather: ‘What’s happening in San Diego isn’t helpful here.’”

“The industry and area leaders also need to address other ways to get people into homes, said Nathan Gorton, executive vice president of the Snoho­mish County-Camano Association of Realtors. In 2003 the median house price in the county hovered around $220,000. Today, it’s $368,000.”

“That’s great for homeowners, he said, but not so great for first-time buyers.”

“The subprime mortgage mess has made lenders return to ‘old school’ restrictions and requirements. Buyers may have to get help from family rather than use a riskier loan, Sparks said.”

The Seattle PI. “The Seattle-area housing market became more like the dreary national market in one more way in January, posting its first year-to-year price drop since 1991, according to the Standard & Poor’s S&P/Case-Shiller Home Price Indices.”

“The annual decline was the first since December 1991 and the largest since October 1991. The monthly drop is the largest in the history of the Seattle index, which goes back to the start of 1990.”

“Given that the Seattle area’s annual appreciation has been declining since February 2006, the fact that it finally is negative is no shock. ‘I’m surprised we hadn’t seen a decline actually a couple months ago,’ said Glenn Crellin, director of the Washington Center for Real Estate Research at Washington State University.”

“But Crellin also didn’t put much weight on a 1.3 percent annual decline. ‘It’s there, it’s real, but it’s not a big deal,’ he said.”

“The Seattle area has declined 5.6 percent from a peak in July, already exceeding an earlier forecast by Moody’s Economy.com that area prices would decline 5 percent from the peak to a trough at the end of this year or early in 2009.”

“‘I guess our forecast was maybe a little too optimistic,’ Andrew Gledhill, an associate economist at Economy.com, said on Tuesday.”

“Gledhill now expects a ‘close to double-digit’ decline in the Seattle area, hitting bottom the first half of 2009.”

“‘There’s still a ton of supply in King and Snohomish counties and it’s going to take a ton of time, with demand being so much slower, for that to be worked off,’ he said. ‘It’s going to be a tough year everywhere, and Seattle’s not going to escape it.’”

“Seattle’s prices continue to hold up better than places such as Miami or Las Vegas, which was just behind Miami with a 19.29 percent annual drop and the largest monthly decline, 5.1 percent.”

“‘Seattle’s never going to get to that point,’ Gledhill said.” “Crellin did not offer any numerical predictions, saying: ‘I think we’re going to continue to see some rough times for the next several months, but I’m hoping it’s not going to get much worse.’”

The Bellingham Herald from Washington. “Homebuilding activity is expected to slacken across Whatcom County this summer as builders wait to clear an inventory of unsold new homes. ‘I have pretty well stopped on the spec side,’ said homebuilder Gary Reid. ‘There’s enough inventory out there.’”

“Reid, a 33-year industry veteran, said experienced builders know that booms never last. Newcomers to the industry may face a harsher fate. ‘When times are good, everybody is a builder,’ Reid said. ‘This contraction takes them out of the market.’”

“Tightening standards for everybody else appear to be pushing more would-be buyers out of the market, causing home inventories to rise. ‘There’s just an oversupply of houses on the market,’ said mortgage broker Susan Templeton. ‘Three years ago there was an undersupply.’”

“David Latham, real estate loan officer at Banner Bank, said some homebuilders are in distress. ‘We’re seeing some very, very established builders having some real challenges out there,’ Latham said. ‘They just didn’t anticipate the dramatic and sudden slowdown in sales.’”

“In some cases, Latham said, investors with little knowledge of the home construction business went into partnership with builders, seeking profits. ‘They thought it was, for lack of a better term, a get-rich-quick thing,’ Latham said.”

“Whatcom County can’t escape collateral damage as money-lending tightens and the housing market cools off. Kristi Coy, senior sales associate at RE/MAX Whatcom County Inc., predicts that home foreclosures for 2008 likely will rise to about 600, a 50 percent increase from the 2007 total of about 400.”

“The problem, Coy said, is that many homeowners and buyers borrowed too much money during the mortgage market boom that ended with a bang in late 2007, and lenders let them.”

“Both borrowers and lenders assumed that home prices would keep rising. But when prices leveled off or sagged, banks and borrowers were stuck.”

“‘We don’t have a bad market,’ Coy said. ‘We have a normal market. What we saw in the last three or four years was an abnormal market and people got used to that. We got used to the high prices.’”

“‘All the people in foreclosure had life happen to them one or two years after buying,’ said Linda Zemler, a short sale and foreclosure specialist who works with Coy. ‘There’s no out.’”

“In many cases, the foreclosures stemmed from refinancing rather than home purchase. A scan of online foreclosure notices filed in recent months shows that the vast majority involve loans made in the past three years. In many cases, the homeowner had been in the home for much longer, but refinanced during the credit boom.”

“The Bellingham Herald compared October 2007’s batch of foreclosure notices to property sale records at the Whatcom County Assessor’s Office and found that 20 of the 41 foreclosure listings for the month appeared to involve refinancing.”

“In many cases, Coy and Zemler said, people tapped into home equity to pay medical bills after major illness. Others simply lost control of spending.”

“‘We’ve watched people lose their homes because they bought a new car,’ Zemler said.”

“Jude Williams, mortgage consultant at Wells Fargo subsidiary Bellwether Mortgage LLC, said some lenders never seemed to turn anyone away.”

“‘We never did a lot of that crazy subprime stuff,’ Williams said. ‘Some of the lenders out there really had much broader parameters. All you had to do was fog a glass. There was a lender for you somewhere. It was pretty bizarre for a while.’”

“Deborah Cook, broker and owner of Cityview Mortgage Professionals in Bellingham, said she often encounters prime borrowers who have been steered into subprime loans by other lenders. In some cases, that meant a ‘pay option ARM.’”

“‘You’re paying interest on interest on interest,’ Cook said. ‘They’ll call me. I’ll try to help them; there’s nothing I can do for them.’”

The Kitsap Sun from Washington. “In yet another indication Kitsap County is not immune from the current housing crisis, the number of properties that were scheduled for foreclosure auction during the first two months of this year is 140 percent higher over the same period last year.”

“About 110 properties were scheduled for auction in January and February combined, compared with 46 in 2007, according to the Bellevue-based ForeclosurePoint.com. Most were single-family homes.”

“Numbers from Kitsap County Assessor Jim Avery told the same tale. ‘Forced sales’ recorded by his office more than tripled between January and February 2007 and the first two months of 2008, from 33 to 101.”

“‘Forced sales’ also includes situations where homeowners and contractors who are behind on their mortgage payments simply walk away from the loans.”

“Walking away from an unaffordable loan is ‘a common occurrence’ today, Avery said. ‘It’s certainly the most serious we’ve had since I’ve been an assessor,’ Avery said of the loan crisis.”

“For all of 2007, Avery’s office counted 332 forced sales. A big spike occurred between November and December, when they rose from 29 to 55 forced sales.”

“About 259 properties are currently scheduled for future foreclosure auctions in Kitsap County, according to ForeclosurePoint.”

“Walt Bailey, co-owner of Olympic Northwest Mortgage, said the current climate is by far the worst of four down cycles he’s seen in his 20 years in local mortgage lending.”

“He offered some encouragement that this, too, will pass. ‘What I’m seeing here is cyclical,’ he said. Years of 20 percent appreciation finally caught up and now ‘we’re slowing up a bit,’ he said. ‘We’re just going back to where we were 10 years ago.’”