The Housing Bubble

It’s Friday desk clearing time for this blogger. “The latest trend in a South Florida housing downturn limping into its third year? Traveling tours of foreclosed homes. On Thursday, a zebra-striped Hummer limousine rolled to a stop in front of a vacant, two-story yellow house on a corner lot in Tequesta, the northernmost city in Palm Beach County.”

“Having finished sipping Mimosas, 11 people stepped out of the 30-foot vehicle and followed three real estate agents inside, opening cupboards, admiring the Mexican tile and wondering how much of a discount they could expect off the $290,000 list price. Then it was back in the limo and on to the next property.”

“Retirees Marie Mindala and Carl Coghlan are planning to marry soon and used the tour as a chance to scout for properties. One in Palm Beach Gardens was listed for $499,900 after selling two years ago for $930,000.”

“‘Somebody paid $900,000 for this house? They were crazy,’ Mindala said. ‘That’s what the market was at the time,’ Coghlan countered.”

“According to a survey by the Mortgage Bankers Association, 2.36 percent of homes with mortgages in Maine are in the foreclosure process, which is the most since the association began keeping records in 1979.”

“The Legal Counsel to the Maine Association of Realtors, Linda Gifford, said many local banks are considering short sales where they accept less than what is owed to them with the reason being that many houses are no longer worth what is owed on them.”

“‘Everybody thought the values would keep rising,’ Gifford said. ‘They didn’t.’”

“In Charlotte and across the country, foreclosures are increasingly afflicting exclusive communities and high-end homeowners. It points to a trend experts say often goes unrecognized — and could get worse.”

“‘We hear all about certain neighborhoods, and justifiably so,” said Conrad Miller, a real estate agent who lives in Providence Pointe. ‘It rears its ugly head in a little different fashion (in the high end). People overbought. Just because you qualify for a $400,000 house, you shouldn’t buy a $400,000 house.’”

“The number of properties for sale in Charleston has built up to nearly 11,000, according to the Charleston Trident Association of Realtors. Home foreclosures in the Charleston area rose dramatically during the first three months of this year. Now that the housing boom has reversed and prices have stopped climbing, some homeowners have found that they now owe more money than their home is worth.”

“‘People have put themselves in a position where they bought houses they couldn’t afford,’ said Frank Hefner, an economics professor at the College of Charleston. ‘If you’ve taken a variable-rate loan, you are speculating. ‘If you do a 30-year fixed (loan), you’re no longer speculating, but you might not be able to afford the house.’”

“The Charlottesville region’s real-estate market may have slowed to a tortoise’s pace, but that’s actually a good thing — at least for first-time homebuyers.”

“‘First-time homebuyers are the engine that makes the real-estate industry and the new construction industry work,’ said Ray Caddell, a real-estate agent who is in his 25th year of working with first-time buyers. ‘We call it the domino. The whole chain has to work or nothing works.’”

“Charlottesville-area homes are a good long-term investment, Caddell said, but not for house flippers who are looking for a quick payday. ‘We have to get back to understanding that the single best reason to buy a house is to put a roof over your family’s head,’ he said. ‘It’s not like buying pork bellies.’”

“Overland Park and Olathe lead Johnson County in foreclosures as of April 1. ‘In Olathe I get (a foreclosed house) every week,’ said Realtor Ellen Brewood. ‘It’s probably the type of housing there. Olathe was very hot a few years ago and everybody was moving there … it’s still a good location but it grew so fast and so many properties were available. It became easier for people to get in.’”

“When Carol Wolowic was looking for a home in Rockford last summer, it was a seller’s market. She was outbid on three houses before finally buying a house on the city’s northwest side for slightly less than $120,000.”

“Last summer, buying that house took real motivation. She spent several Sundays scouring neighborhoods and visiting open houses, going through an estimated 50 houses before putting in her unsuccessful offers and then finding her current home.”

“‘Most of my friends are in Chicago, and they are still renting,’ said the 26-year-old Wolowic. ‘I encourage anyone who asks to go out and buy. It makes so much more sense than renting forever.’”

“Up until about July last year, the local housing market was continuing a six-year run when it was perhaps the strongest sellers’ market in local history. In the second half of 2007, the market did a 180-degree turn. Now, the housing market may be the strongest buyers’ market in the last 10 years.”

“The story of this property’s foreclosure offers a compelling glimpse into the economic chain reactions that began months or even years ago and result in property losses that are rippling throughout the region, the state and the country.”

“Joan, a Fort Collins landlord who asked that her full name not be used, and her husband bought the house three years ago for between $140,000-$150,000 as a rental investment. At the time, Joan’s husband owned his own masonry and bricklaying business. Money was good, business credit was easy to come by and the deal seemed like a wise investment for the future.”

“‘We got one of those no-money-down, interest-only deals,’ she said. ‘It made a lot of sense at the time. We didn’t realize it wasn’t going to cash flow.’”

“Joan said she ‘doesn’t feel too good’ about the house being sold, particularly when she reads the newspapers and hears politicians blaming people like her for getting in over their heads. The loan industry should bear its portion of the responsibility for the rise in foreclosures, she said.”

“‘The people presenting these loans, they’re supposed to be the professionals,’ she said. ‘There isn’t a person in Fort Collins who didn’t get a postcard in the mail every week telling them to refinance, or ‘now’s the time to buy.’ They’re the experts in the field telling you you can afford this.’”

“According to data from the state’s division of housing, Adams County boasted the highest number of foreclosures in Colorado in 2007. To Kathi Williams, housing director for the state’s division of local affairs, these counties’ high figures stemmed directly from a spike in home construction, unreliable lending and low equity.”

“Williams cited commonalities in the foreclosure cycles she’d witnessed, she also pointed out that the current housing crisis is unique in that it has more to do with an oversupply of housing stock and a reliance on unreliable loans.”

“Any long-term solution, she said, would not involve quick-fix legislation or large-scale debt forgiveness. Williams warned that such a simplistic approach could hurt private investors in lending companies, and only shift the burden to another group.”

“‘Today we have a lot of loans in which people overstated their income and understated their expenses,’ Williams said. ‘When you’ve got a market in which you’ve got someone overextended into a house with no equity … They will not be able to sustain them long-term. We’ve got a patient that’s bleeding to death and we need to figure out what is the most effective triage.’”

“House prices in Britain, at six times average earnings, are too high. That’s it. We all know that, we’ve known it for years. Property prices are nonsensical, exorbitant, unaffordable, immorally inflated by investors and a shortage of available land space to build new homes, exploited by a greedy City.”

“All those buying a property have known this for the past five years at least, and it has then become in their interest to hope that the boom continues.”

“To that extent, property owners have been complicit in the financial recklessness of the past few years: easy credit built on pyramid selling. Buying houses has been a gamble, a cross-your-fingers-and- hope-for-the-best, those-mortgages- are-pretty-generous bet that many of us have indulged in.”

“Nothing could be more immoral, then, in the current climate, than using government efforts and taxpayers’ money to encourage first-time buyers to enter the housing market in order to stabilise the dodgy situation that banks and incautious borrowers have got themselves into.”

“They are trying to tempt the banks into continuing to offer cheap mortgage deals on properties that are simply not worth the astonishingly high amounts they have been flogged at in recent years. And trying to encourage you to sign up for them.”

“Why would anyone with the interests of a first-time buyer at heart encourage him, or anybody else for that matter, to purchase at the top end of the market, with a long-overdue correction imminent? They will tumble into negative equity before they’ve finished clearing up the Valpolicella stains from the housewarming party.”

“It isn’t as if, to most of the rest of us, a fall in house prices is such a big deal anyway. To most of us, for whom a house is a home, not part of an investment portfolio, tumbling values make sense. To most of us, the loss of 4,000 estate agents isn’t much to worry about. Nor is the loss of tens of thousands of City boys.”

“To most of us, the housing bubble has been an alarming, nonsensical boom. For most of us, a sharp correction will come as a blessed relief. House prices might make some sort of sense again; investors from the City and overseas will leave us alone and stop buying up the places we need to live in.”

“A decent house in the country might become affordable once more for a local person, not just for someone from far away, paying cash.”