The Housing Bubble

The Sun Times reports from Illinois. “Home sales in Chicago fell 23 percent and the median price fell 4.5 percent in the third quarter from a year earlier, the Illinois Association of Realtors said Monday. Statewide, sales dropped 21.2 percent and prices fell 8.2 percent. ‘Clearly the housing market is still unsettled,’ said David Hanna, president of the Chicago Association of Realtors in a statement, adding the industry is looking to the new administration for direction in how to resolve ‘the overriding economic issues we face.’”

The Northwest Herald from Illinois. “In May 2004, Cary Bruce, a McHenry native, and his wife bought a small house in Round Lake Beach where they live with four children. They bought the house before Bruce lost his job as a union sheet metal worker. ‘We don’t answer the phone because we get 15 to 20 calls a day, and it’s all bill collectors,’ said Bruce, who notes that there isn’t a lot of work in sheet metal these days because of the housing slump. ‘We’re not quite in foreclosure yet, but we’re very, very, very close.’”

“McHenry County had 1,881 foreclosure case filings in the first 10 months of 2008, 332 more than in all of 2007. That rise comes after 2007 saw 1,549 foreclosures, a rise of 451 over 2006, according to statistics compiled by the McHenry County Circuit Clerk’s Office. McHenry County had 112,384 housing units, according to the 2006 census.”

“Not every foreclosure case filing results in foreclosure. But 90 percent to 95 percent of cases filed usually do, said McHenry County Judge Michael Caldwell, who handled foreclosure cases two days a week until September. In the vast majority of foreclosure cases, the property owners never appear in court to defend themselves, Sullivan said.”

“In March through August McHenry County had 1,065 foreclosure filings. Maybe 5 percent to 10 percent of the filings won’t end in a foreclosed home, Caldwell said. ‘Potentially what that means is 1,000 empty houses are going to hit the real estate market sometime in the next year,’ Caldwell said.”

“Bruce finds some comfort in knowing that he’s not alone. He hopes more banks are forced to renegotiate mortgages, still providing lenders a profit, if a little less than originally anticipated. ‘I’m not happy about it, but it does make me feel better that there’s many millions, millions, millions of people who are in this situation, and we can be heard,’ Bruce said.”

“Bill Carlander said he had to lay himself off work. ‘We’ve all seen this to some degree, but never like this,’ said Carlander, who has run Wauconda-based Carlander Drywall Contractors Inc. for almost 30 years.”

“According to the Illinois Department of Employment Security, construction lost 3,300 workers statewide in the month of September, the second largest loss since February 2007. This year, the section has shed 10,000 workers, the worst among all the industry sectors.”

“The housing slump hasn’t come as a complete shock for Carlander, who said his workload had taken dramatic cuts in the past few years. In 2006, his company worked on about 650 homes. In 2007, it was down to 350. ‘This year, we’ve done 15,’ Carlander said. ‘We only have one on the books to the end of the year.’”

“During the boom times, Jan Leider liked to take five vacations a year. Now, the president of Northwest Mortgage Services takes one. She is selling about half the number of mortgages that she did during the first half of the decade.”

“‘This is the worst I’ve ever seen it,’ said Leider, who has been in the mortgage business for 42 years. ‘Fewer people are applying for loans. They are worried about the economy; they don’t want bigger payments. People are staying put.’”

“Statewide, the number of Realtors is down about 18 percent since its peak. In 2006, the Illinois Association of Realtors had 63,683 members. The association now has 52,072 members, spokeswoman Mary Schaefer said. The housing market correction has created a ’survival of the fittest’ atmosphere within the industry, Coldwell Banker real estate agent Cathy Burley said.”

“The price of the homes that Re/Max Plaza real estate broker Elise Livingston is selling have dropped. Agents no longer can afford to take on obstinate clients or advertise homes that they feel are overpriced. ‘When I meet with a seller, I sit across from them and tell them the truth, which isn’t always easy,’ Livingston said.”

“Livingston said she even has turned away some sellers who couldn’t be realistic about setting a list price. Agents also have had to learn more about foreclosures, short-sales and housing auctions – things they rarely had to worry about in the past.”

“Gone are the days of easy money, stated-income loans, and other exotic lending packages, said Leider. ‘I’ve had to turn away more customers because they can’t afford what they want to buy,’ Leider said.”

“Other customers are being turned down by banks and other lending institutions. They simply fail to qualify for loans, either to buy, sell or refinance, Leider said.”

“Regardless of the gloomy reports, volatile stock market and uncertain future, all of the real estate agents, lenders and brokers contacted for this story agreed on one thing: Now is the time to buy. ‘What are you waiting for? It’s a great time to be a homeowner,’ Livingston said.”

The Naperville Sun from Illinois. “To rent or buy - that is the question. There was a time when the noble thing to do was save your money and buy a piece of the American Dream. Naperville-based real estate agents say there might not be a better time to buy than now. And, they add, if your individual profile is right, buying trumps renting every time.”

“‘First and foremost, Naperville is not the rest of the country,’ said Jim Freier, a broker with Re/Max Action. ‘We have a unique market here and property in DuPage County is selling.’”

“Al Scheiderer, a real estate agent working in Naperville says paying rent means giving away all that money as real cash. ‘If your rent is $2,000, that’s real money that you have to give away,’ he said. ‘There are some fantastic prices out there right now, and if people shop carefully without emotion, they can really get a bargain. Regardless of how the economy has been, it’s still always better to buy, as long as you aren’t looking to turn things over and make a quick re-sale.’”

“Jeff Stainer, a Naperville agent, said history has shown that both the stock market and home values are going to rebound and, if folks don’t buy now, ‘they’re destined to miss out on the bottom of the market.’”

“Courtney Tarpein, 30, recently decided she and her husband were ready to leave their renting days behind. The couple just purchased a home in Brookfield where they had been renting a house. Tarpein is expecting a baby before the end of the year and said the time was right to own instead of continuing to rent. ‘Our lease was up in November, and I’d been putting money away in CDs for savings but not particularly for a house,’ Tarpein said. ‘The problem, as I see it, is there are so many upside down mortgages right now.’”

Medill Reports from Illinois. “When Anthony Smith moved into his four-bedroom house more than six years ago, he noticed that the previous owners’ property taxes seemed high. ‘The previous owners were getting screwed,’ Smith said. ‘When I moved in, I decided I wasn’t going to take it,’ he added. ”

“So the following year, Smith, an unemployed computer programmer, appealed his property taxes. When Smith appealed in 2003, the housing market was stable. Now falling home prices have made appeals all the more desirable, with Mayor Daley calling on homeowners to challenge their property taxes.”

“‘Based on the dire economic situation nationally and locally, we’re willing to consider any evidence’ that might demonstrate lower home values and thus reduce property tax bills, said Scott Guetzow, a spokesman for the Cook County Board of Review.”

The Journal Sentinel from Wisconsin. “The recession and credit crunch, which have killed plans for new condominiums, hotels and other projects, are forcing some Milwaukee-area architectural firms to cut jobs. Kahler Slater, with offices in Milwaukee, Madison, Green Bay and Burlington, N.C., has 145 positions after its recent cuts, said George Meyer, co-executive officer. Kahler Slater was hurt when some of its institutional clients postponed projects, Meyer said.”

“Even large institutional clients are having trouble finding investors willing to buy bonds to generate financing for their projects, Meyer said. Those institutions also have seen the income from their investment portfolios plummet thanks to Wall Street’s meltdown, he said.”

“Eppstein Uhen, which has offices in Milwaukee and Madison, reduced its staff largely because of the decline in the condo market, Uhen said. ‘That work has fallen off the cliff,’ he said.”

The Kalamazoo Gazette from Michigan. “Greg Dedes, a 37-year-old construction manager who lives near Portage Lake in Mendon Township…was annoyed in October when he was notified that his home equity line of credit at Chase Bank had been eliminated. But, he said, he was infuriated when he learned the consumer banking operation of JP Morgan Chase & Co., which was set to receive $25 billion from the U.S. Treasury, had not reduced the lines of credit on his high-interest rate credit cards.”

“‘Our home equity line of credit issued at a rate of 6.5 percent to 7.5 percent interest was canceled while they maintained over $30,000 in available limits on credit cards with interest rates pushing 18 percent to 20 percent,’ Dedes wrote to the Gazette in October. ‘JP Morgan Chase should either reinstate the lower rate products or return the $25 billion that they were issued.’”

“Dedes said that when he built his $210,000 home in St. Joseph County in 2005, he opened a line of credit to take advantage of a mortgage-rate incentive and to create a ’safety net.’ ‘Like most people, you get that home equity line and set it up as a safety net, just in case,’ he said. ‘Fortunately, I haven’t lost my job.’”

“Dedes said it wasn’t right that Chase and others would take billions in taxpayer money and at the same time cancel credit. ‘They say they’re pulling back lines of credit in the best interest of customers,’ he said. ‘It just seems that’s not necessarily in my best interest.’”

“Mary Kay Bean, a spokeswoman for Chase Bank in Michigan said Dedes’ complaint reflects a difference between credit-card and home-equity credit lines. Credit cards, she said carry high interest rates because they’re not backed by assets. Home equity loans require equity, or the home’s market value minus what’s owed on it.”

“As home values have fallen dramatically over the past two years, a lot of equity has disappeared, Bean said. ‘You don’t want people to end up in the position of owing more than what the house is worth,’ she said.”

“The average home price in St. Joseph County has declined 15 percent to 20 percent in the past year, said Rick Mahler, president of the St. Joseph County Association of Realtors. ‘That’s due to the number of foreclosures that are out there that have pulled the whole thing down,’ Mahler said.”

“‘When a home value goes down precipitously, we are permitted to reduce the line (of credit) or cancel the line,’ said Terry Francisco, a spokesman for Bank of America. He said the Bank of America is reviewing loans in areas where there have been rapid declines in home prices, such as Michigan, California, Arizona and Nevada.”

“”In addition to Chase, at least three other large bank holding companies contacted by the Gazette are reviewing home prices and their portfolios of home-equity loans and reducing or canceling lines of credit as necessary, bank officials said. Those are Fifth Third Bancorp, Bank of America Corp. and National City Corp.”

The Columbus Dispatch from Ohio. “The Treasury Department recently…denied National City Corp’s request to be included in the $700 billion rescue plan. Instead, PNC Financial Services Group of Pittsburg received $7.7 billion in federal funds and marching orders to use it to buy struggling National City, which it did for $5.58 billion, or $2.23 a share.”

“In the end, National City was a textbook example of how the subprime-mortgage mess and the accompanying drop in home values brought down seemingly indestructible companies and led the country into recession. National City shareholders lost billions as the company’s stock plummeted from $38 in early 2007 to less than $2 at one point, and many Ohio residents saw their investment and retirement accounts drop dramatically.”

“Howard Klein was one of the stockholders who watched his National City investment become virtually worthless. ‘I got hit pretty good, but I have some friends with even bigger stakes. They’ve really been hurt by this,’ said the northern Ohio resident.”

“The lesson, said Andrew Karolyi, a professor at Ohio State University, is that financial institutions are intrinsically linked to one another and the overall economy. A serious break in the chain — in this case, the decline in housing prices — can lead to ‘a systemwide failure to the real economy, to unemployment, to the gross national product.’”

“The chapter on National City will describe a bank that jumped into the lucrative subprime market with both feet, scooping up companies that originated those risky loans and also offering such loans on its own to its core market in the Midwest and then to customers all over the country. ‘They were one of the most aggressive subprime lenders,’ said Matt McCormick, an analyst with Cincinnati investment adviser Bahl & Gaynor. ‘It was great when the market was great, but they paid the price when it wasn’t.’”

“‘They became one of the most aggressive lenders,’ McCormick said of National City. ‘They dominated the Midwest and then went into other markets.’”

“By 2003, National City was making a profit of $2.6 million a day from its mortgage business. ‘But as they grew, they became more and more dependent on low interest rates and the continued housing boom,’ McCormick said.”

“Julien McCall, chairman of National City from 1979 to 1986, said he saw it all coming and tried to warn National City executives and board members, but to no avail. ‘It’s sad for the people involved,’ he said, ‘especially the stockholders, who absolutely got clobbered.’”

“McCall noticed a change in culture at National City and other financial institutions, to one in which risk became more acceptable in the chase for the ever-increasing profits that stockholders craved. ‘The credit culture changed,’ he said. ‘The worst thing you can do in community banking is make a bad loan.’”