The Housing Bubble

It’s Friday desk clearing time for this blogger. “Drive into the sprawling development of stucco starter homes in this Phoenix suburb by the San Tan Mountains and the first thing you notice are the ‘For Sale’ signs. The next thing is what many of them say: ‘Bank-Owned Home.’ Jinae Nielsen, 24, with her husband and two toddlers, she moved into a foreclosed four-bedroom home for $118,000. The family driven out had bought it for $259,000.”

“A larger home nearby sold for $111,000. ‘In order to get back what we want, we’re going to have to be here for a while,’ she says.”

“What seemed like a can’t-miss business model — building retirement homes for tens of millions of active older people with money — is in the same predicament as the rest of the nation’s housing market. Among the seniors who sold their departure homes before the housing crash is David Clukey, who with his wife, Ruth, and their two cats share a villa at Arbor Homes’ Crimson Oaks development near Lake Saint Louis. The Clukeys moved there in 2006. Of the eight homes, only two are completed. The builder has cut prices by $50,000 and is delaying closings in hopes buyers can sell their departure homes.”

“Clukey said his only regret is that he can’t take advantage of Crimson Oaks’ new low prices. ‘I wish I was just moving in because you could make a hell of a deal,’ he said.”

“Troublesome to other observers of the Obama plan is the lack of focus on solving the underwater mortgage problem by writing down boom-time loan amounts to bring them in line with current housing values. Fort Lauderdale-based real estate analyst Jack McCabe said the vast problem of underwater homeowners will not be solved simply by refinancing to lower interest rates. ‘If you have a $300,000 loan on a property that’s now worth $150,000, how are you going to refinance that?’ McCabe said.”

“‘If they don’t have the money, they’ll just wind up in foreclosure and turning in the keys anyway. So really this is just offering people in desperate positions of losing their homes an opportunity to be glorified renters,’ McCabe said.”

“In 2005, the typical seller netted $225,000 from the sale of a home there, said Leslie Appleton-Young, chief economist for the California Association of Realtors and keynote speaker at the 2009 Real Estate Market Forum Wednesday at The Coeur d’Alene Resort. That is now $100,000. ‘They are moving in with their parents or relatives,’ she told The Press.”

“Loose credit that is blamed for the current mortgage meltdown is a thing of the past, Appleton-Young said. ‘You have to be who you say you are,’ she said.”

“‘What a concept,’ said Bruce Jolicoeur, a principal in Auble, Jolicoeur & Gentry, which prepares real estate market reports from its offices in Spokane and Coeur d’Alene. ‘It’s amazing she had to say that.’”

“Marin’s home sales in January showed another steep price drop compared with one year ago and matched declines throughout the Bay Area, according to figures released Thursday. The median price of a single-family home in Marin in January was $750,000, down 24 percent from $990,000 last year.”

“Katie Beacock, president of the Marin Association of Realtors, said the current market’s silver lining ‘is for the first time in many years, Marin is creating a good, affordable first-time homebuyer market. Who knows when (the market) is going to level off,’ said Beacock. ‘I don’t think we’ve hit bottom, but I think we’re coasting at a relatively realistic pace.’”

“A third of owners will walk away when the value of their homes drops 20 percent or more below what they owe, even if they can afford the payments, a situation known as ‘rational default,’ said Norm Miller, director of real estate programs at the University of San Diego School of Business Administration.”

“‘The biggest reason modifications end up re-defaulting is because they are in markets where prices have continued to go down,’ Miller said in an interview. ‘When people are underwater and don’t see an end to it, a lot of them just walk away, even if they can make their payments, because they don’t want to be wiped out financially.’”

“‘We’re trying to make the financial decisions you made when you bought your house more affordable for you, not undo your bad real estate investments,’ said Evan Wagner, a spokesman for IndyMac Federal Bank in Pasadena, California. ‘When people say, ‘My home is underwater, therefore I can’t afford it,’ what they are saying is they have buyer’s remorse.’”

“James Muise of Billerica, Massachusetts, has seen his home’s value tumble $30,000 below his mortgage in the past 18 months. He got a modification last year that gave him a five-year reduction of interest on the 30-year mortgage he took out in 2007, cutting his monthly payment to $1,800 from $2,500. Still, he is on the edge of default, he said.”

“‘I’m working 15 hours of overtime each week and I’m barely able to make the payment on a $280,000 house that has a $310,000 mortgage,’the 50-year-old exterminator said. ‘When I sit here deciding whether I should pay the heating bill or pay the mortgage, I’m close to handing the keys back to the bank.’”

“Virginia Pratt, a foreclosure prevention counselor at Jamaica Plain-based ESAC, a community action agency, said that while West Roxbury/Roslindale doesn’t hold a candle to other Boston neighborhoods on foreclosure numbers, she’s noticed changes in recent months. ‘We still continue to see the bulk of people from Hyde Park, Mattapan and Dorchester,’ she said. ‘But recently we have been getting calls from [better-off suburbs] Needham and Dedham.’”

“But Les Rudman, of ERA Key Realty Services in Milford, who is currently marketing a home on Ainsworth Street in Roslindale, said his business is growing. The Ainsworth Street home has been shown to more people than others Rudman is listing in central Massachusetts and Rhode Island, he said. ”

“‘That’s because I think the Roslindale market has reached bottom and is starting to come back up,’ he said.”

“Richard Fulkerson retired last fall after 10 years as Colorado’s top banking regulator. There was just one bank failure, in 1998, during the tenure of the taciturn Wyoming native. Fulkerson spoke to the Rocky in January about the state of the industry.”

“On the root cause of today’s problems: ‘(Home loans) have always been considered the easiest loan to make, and the safest loan. But in an effort to put as many people as possible into a home to strengthen society, we stretched the credit process to the point where origination has detached from collection. Anyone can make a loan if they don’t care whether someone else has to collect. At the highest level of Wall Street, there was a lack of understanding of the risk of mortgage pools and how they’d react in a downturn.’”

“It’s the difference between someone doing the right thing because they know someone else will look at it in 12 to 18 months, versus someone saying, ‘How much can we get away with before it blows up and we walk away.’”

“Garden Grove and Westminster are the latest Southern California cities to consider using taxpayer dollars to ’solve’the so-called housing crisis. But there’s little chance that the dollars will do anything more than waste money, increase the power of local government fiefdoms and even slow the market correction that’s going on in real estate.”

“There is no real housing crisis. Market-based economies are constantly adapting to new realities, provided the government doesn’t interfere with market processes. Housing prices have tumbled in the past year, and when prices fall back to Earth, buyers snap up the bargains. Yet government at all levels seems committed to trying to artificially reinflate the housing bubble.”

“Given the budget insanity at the state level and the stimulus insanity at the federal level, it’s hard to be too harsh on cities for wanting to join in on the action. Still, the best antidote for craziness is sanity, not more craziness. Why don’t Garden Grove and Westminster tend to the basics of city government and let real estate buyers and sellers work out the foreclosure situation on their own?”