The Housing Bubble

It’s Friday desk clearing time for this blogger. “Mortgage scammers took advantage of loopholes in New York State lending laws to defraud homeowners and lending institutions all over the state, according to a new report. In one example from 2006, Suzette Francis, a woman with two young children, no assets, working as a $10-an-hour security guard and living in a homeless shelter, obtained a mortgage for $470,000. Francis had down payment and no proven income or assets.”

“She would have to work 400 hours a month just to pay her loan. ‘I’m, like, in a million dollar debt in housing and cash poor,’ Francis told the Commission.”

“Rhode Island’s housing market continues its downward spiral, with second-quarter house prices falling to their lowest level in five years. One ‘positive sign,’ the Realtors reported, was a decline in the inventory of single-family houses on the market. Not everyone, however, is convinced.”

“‘People are taking their homes off the market,’ said Suzanne E. Mulvee, senior real estate economist at Property & Portfolio Research in Boston. ‘Why bother having open houses if the thing is not going to move?’”

“‘It takes people graduating from school, people renting now and continuing to save so they can buy,’ Mulvee said, ‘We borrowed from the future [when] we took really good renters and made them really bad homeowners.’”

“When the Town Council sent out estimated tax bills last month based on new land and home valuations, it used a tax rate of $15 per $1,000 of value. On Monday the council dropped that rate, leaving taxpayers looking at a tax rate of $14 per $1,000 of valuation. But even with that move, many Fort Kent property owners are looking at major tax increases. ‘It’s no secret there’s been a significant shift in valuations,’ said Town Manager Don Guimond. ‘Land went up across the board.’”

“‘This valuation was done at the top of the housing market,’ said Councilor Gilman Caron. ‘Now that bubble has started to burst.’”

“Saint John’s real estate market is hot, hot, hot! The experts agree Saint John is on the cusp of booming prices, growth and housing sales. ‘It’s a hot market for sure,” said Realtor Marc Mawhinney, ‘but I think it’s probably just the tip of the iceberg. I don’t think the boom has hit yet with all the projects coming.’”

“The market, both in Saint John and especially the Kennebecasis Valley, is good for sellers right now. ‘We’re seeing as many as five, six, and even eight offers on a house the day it comes out on the market. It’s amazing. We’ve never seen that before,’ said Ron Young, owner of Exit Realty.”

“A beach hut with its own patch of sand was snapped up for a staggering £85,000 by a mystery buyer. The hut, which has no running water or electricity, lies on the beach in the sought-after coastal resort of Abersoch. In recent years prices for the huts have rocketed. Three years ago the Daily Post reported the sale of a hut at £60,000.”

“Estate agent spokesman Martin Lewthwaite said: ‘The hut was sold for substantially more than the guide price of £75,000. The buyers wanted the use of the hut during the main summer season. Prices for these huts are holding up very well, there is always a demand for huts on the beach.’”

“Cymuned chief executive Aran Jones said: ‘People who live in Gwynedd are fed up to the back teeth with hearing about these absurd prices for ugly sheds on Abersoch beach, while local people can’t afford houses.’”

“Jim Kingham says the credit crunch is hurting his Belfast-area moving company more than the violence that ravaged Northern Ireland for 35 years. Kingham has fired nine of his 12 workers at A1 Shortnotice, based in Newtownards, as house prices plunge and sales dry up.”

“‘You can take me back to the days of the bombings,’ says Kingham, who has run A1 for 40 years. ‘Business was better then. Five of my six lorries haven’t left the yard for months.’”

“House prices rose at the fastest pace in Europe, data from the Royal Institute of Chartered Surveyors show. They climbed 79 percent in the two years ending in the second quarter of 2007, according to Nationwide Building Society, the U.K.’s biggest customer-owned lender.’

“‘Properties would go on the market and the same day there was maybe 10 or 20 bids in,’ says Desmond Turley, managing director of Ulster Property Sales in Belfast. ‘It was frenzied. Now it’s different. The level of interest just isn’t there.’”

“Maeve Egan bought a two-bedroom apartment in west Belfast for 130,000 pounds in 2006. Now it’s worth 30 percent less, and she can’t afford the 800-pound monthly mortgage payment after failing to find a roommate.”

“‘I’m living in my mum’s house and renting the flat out just to pay the mortgage,’ says Egan, adding that she’s cut her spending on clothes and holidays. ‘I can hardly afford to go out through the door because of it.’”

“In 2006 and 2007 many banks allowed three or four people to sign for mortgages when the buyers didn’t qualify on their own, said a spokesman for Banco Bilbao Vizcaya Argentaria SA, Spain’s second-biggest bank. Banks also granted variable-rate loans to families at the financial limit when interest rates were close to the lowest in a generation. Kutxa even offered a 50-year mortgage in 2007.”

“‘There was a fever in the real estate business, and it was the banks who set the terms,’ says Ramon Lobo, who worked as an auditor at BBVA during the boom.”

“Jose Maria Gonzalez is struggling to unload a four-bedroom apartment in Madrid so he can pay for the 480,000-euro ($750,000) house he now lives in. Gonzalez bought a new home outside Madrid last year. He took out a bridge loan to tide him over until the sale of his apartment, reassured by an estimate that it was worth 450,000 euros.”

“After a year on the market, he dropped his asking price to 435,000 euros from 510,000 euros and is still getting no interest. Payments on the bridge loan are set to begin in October on top of 1,300 euros a month for his mortgage.”

“‘I don’t see a way out,’ he says. ‘There’s no way we can pay them both, and practically no one has been to look at the place.’”

“When Borja Fernandez bought his two-bedroom apartment in Madrid in 2005 it was valued at 530,000 euros even though he only paid 486,000 euros. That allowed Caja Madrid to overstate the amount of home equity backing his 450,000-euro mortgage.”

With Sociedad de Tasacion SA estimating that property values locally have increased 22 percent since 2005, suggesting that the apartment is worth 100,000 euros more than the best offer, he’s not ready to cave in yet.’

“‘It starts to weigh on you,’ he says. ‘People say prices will start to rise again in 2010, but then you think: What if they’re wrong?’”

“House prices fell by 2.2 percent from June to July. This continues a trend which leaves housing 3.3 percent cheaper than last year. Less borrowing also indicates that prices may continue to fall.”

“‘We no longer have confidence in our own forecast,’ says head of the Norwegian Realtor Association, Christian Dreyer. NEF had estimated that 2008 prices would rise by 3 percent.”

“The realty market has been forced to do a reality check after being hit by inflation and economic slowdown. Metro properties have suffered badly but even small cities haven’t stayed immune to the headwinds.”

“‘NRI investors are bailing out Ahmedabad. In most tier-II markets, prices have gone down sharply,’ added said Pankaj Renjhen, managing director (Mumbai) of real estate consultants Jones Lang LaSalle Meghraj.”

“Shailesh Kanani, a research analyst with brokerage Angel Broking, said that in tier-II cities, projects at realistic rates like Rs 1,500-2,000 per sq ft are being bought out by end-users. ‘But investors have already packed their bags and left this business,’ he said.”

“The 22-story Glass House residential high-rise on McKinnon Street was planned as a condominium tower. But the builder recently decided to switch to rental after several months of marketing the units to potential buyers.”

“‘A lot of the townhome market was selling with subprime mortgages and that’s gone, so that’s why it’s slow,’ said Dallas housing analyst Mike Puls. ‘And a large segment of the luxury condo market - 25 percent or so - was selling to investors.’”

“With the market facing an oversupply, developer Harvest Partners has killed plans for two condo towers in its huge Park Lane development. The condos originally were to sit atop a boutique hotel. ‘We took the condo portion off,’ said Harvest Partners’ Tod Ruble. ‘Three or four years ago, you couldn’t finance a hotel without condos. Now you can’t finance one that has them.’”

“Benton County enjoyed a recordbreaking building boom. But any code-enforcement official, Parks Department employee or city planner knows that the growing number of foreclosures, bankruptcies and those simply walking away from their homes has created quite a nightmare.”

“‘There are entire subdivisions that nothing’s happened with,’ said Rogers codeenforcement supervisor Jeff David. ‘There are weeds 6 to 8 feet tall.’”

“‘These developments and homes that were only partially completed, that’s where you start finding piles of bricks, rebar and wood in the yard,’ said Roy Lovell, Bentonville’s parks foreman. ‘A lot of times, grass was never planted, and everything is so grown over we can’t see what we’re dealing with.’”

“Demand is rising as rental home and apartment vacancies fall across the Wichita area. It’s welcome news for landlords who can finally raise rental rates after almost a decade of steady or falling demand.”

“‘Hey, five years ago people were moving out of rentals left and right to buy houses,’ said Paul Savage, president of Apartment Finders and Savage Inc. in Wichita. ‘Isn’t it amazing? What goes up is always going to come down, no matter what you do.’”

“The bicounty housing market has slowed some since last year. Glenn Crellin, director of the Washington Center for Real Estate Research, said ‘the Tri-Cities market is probably marching to its own beat.’ ‘It’s certainly a market that doesn’t warrant any panicking,’ Crellin said.”

“‘Credit standards across the board … are all much tighter than I’ve ever seen them,’ said Mark Runsvold, branch manager for CLS Mortgage in Kennewick. He said he’s a little concerned that even people with stellar credit and incomes that support buying a home aren’t able to get zero-down loans, which still are in demand.”

“Dave Retter, designated broker and co-owner of Windermere Tri-Cities in Kennewick, thinks the market will have a strong second half of the year. ‘Every year you’re not going to set a record in a good market,’ Retter said.”

“To hear some real estate salespeople tell it, the housing market isn’t all that bad and would be a lot better if “The Media” would stop publishing bad-news stories.”

“I know that folks in the housing business are going through some tough times, but I’m not willing - as a card-carrying member of said Media - to take responsibility for it. We didn’t invent the housing bubble or the mortgage crisis or the resulting economic recession. And while we do write a lot about it, perhaps lengthening the trough, we also helped hype the market when it was on the way up.”

“Remember how buyers needed to hurry, needed to pay more than listing, how it was OK to borrow more than you could afford because appreciation would take care of it? Where were the complaints about those stories?”

“Along with the economy, the conversation at the average metropolitan social gathering has suffered a downturn. But I do detect an upside.”

“People have stopped braying on about how much their property is worth and what they are going to do when all the lovely lucre from it is realised. No one is banging on about doing up rambling farmhouses in France or fincas in Spain. No one gives a floating shelf what Sarah Beeny or Kirstie Allsopp thinks this week.”

“While dreams of making pots of money from our houses - which would enable us to run off into the sunset in pursuit of the remote-worker/yoga-teacher, perfect downsized dream - are being shattered by falling property prices, this economic standstill could prompt a new appreciation for the houses we are stuck with.”

“It is probably crass to count our blessings - certainly while first-time buyers are priced out of the market and houses are being repossessed. But it is a relief that nomadism among the professional classes - and better yet, talking about it - is being forced to stop. We might get to know each other, and our homes a bit better.”