The Housing Bubble

A report from the Associated Press. “Sales of vacation and investment homes slid 22 percent last year, a sign that tough economic conditions and tight lending requirements shut out buyers, the National Association of Realtors reported yesterday. Deeply discounted foreclosures and homebuilders’ efforts to unload inventory led median sales prices of vacation homes and investment properties to drop 23 percent and 28 percent, respectively. ‘As in the market for primary residences, it appears that many sales of deeply discounted distressed homes are pulling down the median price in the second-home market,’ said Lawrence Yun, the Realtors group’s chief economist.”

“Lee Falgoust bought a three-bedroom home in Ocean City, N.J., last September for $412,000 - about $150,000 less than it sold for in 2005. He plans on spending about two weeks there this year, and is renting it out for as much as $1,950 per week during the summer season. ‘It was a pretty safe investment,’ said Falgoust. ‘The rental income is helping me be able to afford it.’”

The New York Times. “There are cranes in motion at several large residential sites in New Jersey, despite something close to paralysis in the housing and mortgage markets. But at the Esperanza of Asbury Park, work was halted with the construction just above ground level, while at the failed Centuria project in Fort Lee, the land is up for sale again. And it appears that steel hasn’t even been ordered yet for other towers and complexes around northern New Jersey that were originally proposed to be opening by 2010.”

“Roseland’s Monaco Towers was originally planned as condos, but switched to rentals after the market soured last year. In addition, new rules issued by Fannie Mae make it likely that few banks would be willing to issue mortgages to buyers of units in new condominiums. But rentals are different, said developer David Barry, the president of the Applied Companies in Hoboken. ‘Rental buildings are the strongest space in all of real estate right now,’ he said.”

“‘It is true that rents are softening a bit, even in Hudson County,’ he added, ‘but for the most part, they have been holding up fairly well. Everyone thinks the world is literally coming to an end. We try to remain conscious of the cycle and are poised to take advantage when the next one begins.’”

The Times Tribune from Pennsylvania. “The residential real estate market could get worse before it gets better. That is the prediction by Austin Jaffe, consulting economist for the Pennsylvania Association of Realtors. ‘I think we are far from through in the collapse of the housing market,’ he said.”

“‘I think there’s growing pent-up demand from buyers. They’re out there, they’re just waiting,’ said Joyce Cornell, owner of Coldwell Banker Town and County Properties, which has offices in Clarks Summit and Moscow, and a customer base that stretches across Lackawanna, Susquehanna, Wayne and Monroe counties. ‘We experienced a much more robust market than usual in 2005, and 2006 and into 2007. We’re now returning to a more stable or more normal market for Northeastern Pennsylvania. In years past, like 2005 and 2006, we had great markets, but it was nothing like the overheated markets in California and Florida.’”

“‘We are seeing a greater number of foreclosures,’ she said. ‘But our foreclosures, the majority of them were investor properties.’”

The Meadville Tribune from Pennsylvania. “Another 200 manufacturing jobs disappeared in Crawford County in February, pushing the local unemployment rate to 9 percent — its highest point in 17 years. ‘It’s as bad as I can remember for a long time,’ said Sandy Rossi, the executive in charge of the United Way. ‘We’re getting more people calling about where to go to get help with utilities, mortgage and rent.’”

“Before the economy soured, Rossi said the office got about four calls a week. ‘Now we’re getting four a day,’ she said.”

The Chattanooga Times Free Press from Tennessee. “Unemployment in metropolitan Chattanooga rose to the highest monthly level in nearly 25 years last month. The Tennessee Department of Labor and Workforce Development reported Thursday that Chattanooga’s jobless rate rose to 8.7 percent in February — the highest rate since July 1984.”

“‘Our economy is in as much trouble as it has been in a long time,’ Gov. Phil Bredesen said Thursday. In Tennessee, unemployment was highest in Perry County in Middle Tennessee at 24.1 percent and in Lauderdale County in West Tennessee at 17.9 percent. ‘Those rates are Depression-era levels of unemployment,’ Gov. Bredesen said. ‘I’m really going to try to focus now on what to do with the dozen or so counties that have just fallen off the wagon.’”

“Metro Dalton, the self-described carpet capital of the world, continued to have the highest unemployment rate last month among Georgia’s 13 metropolitan areas. Employment in the Dalton area has dropped by 5,702 jobs over the past year, driving up the jobless rate to the highest levels since the early 1980s, state records show. ‘Until housing and construction comes back, Dalton is going to suffer,’ Dalton Mayor David Pennington said.”

WSMV Nashville from Tennessee. “Imagine if you wanted to get a divorce, but couldn’t because it costs too much. That’s exactly what’s happening, according to Brentwood divorce attorney Jonathon Stein. ‘I have one client who got laid off, so he’s decided not to pursue his divorce,’ Stein said.”

“‘Other clients have shared property, and, with housing values down, they’ve decided to stay together and wait, hoping that the housing market will come around,’ he said. ‘They’re forced to stay together, not because they want to reconcile or out of love, but out of this need to stay together financially.’”

The Memphis Business Journal in Tennessee. “Residential real estate appraisers already struggling to find competitive sales to determine fair market values will soon be required to attest to market conditions and abide by a new code of conduct meant to weed out any hint of collusion between lenders and appraisers. May 1 will mark the implementation of the Home Valuation Code of Conduct, which will basically put a firewall between the lender and the appraiser and not allow lenders to request or use specific appraisers.”

“Both new requirements have their roots in criticism the appraisal industry has taken over the catastrophic downturn in the residential real estate market in the last year and the billions in losses by government lenders like Freddie Mac, Fannie Mae and the Federal Housing Administration. The most immediate step to try and remedy that is the 1004 MC form.”

“Appraiser Don Ralph, owner/operator of Ralph Real Estate Appraisal, says the 1004 MC is misnamed and should be called a ‘market trends report’ since it covers a 12-month period. He thinks the changes are overkill for a problem that responsible and ethical appraisers recognize. Many appraisers have resisted indicating declining conditions. ‘They were afraid to ruffle the feathers of brokers,’ Ralph says. ‘Now it’s not a big taboo.’”

“Still, he thinks Fannie Mae’s approach with the 1004 MC is too much. ‘It’s like killing a gnat with a bazooka,’ he says.”

“For each period, appraisers are asked to report not just median prices, but the number of properties on the market, absorption rates and days properties have spent on the market. Appraisers also must determine if a property’s value is increasing, decreasing or stable. ‘In some cases declining is good,’ says real estate appraiser Allen McCool. ‘If inventory is going down, that’s good. If median price is going down, that’s bad.’”

The Virginian Pilot. “With interest rates sliding to historic lows, mortgage applications have surged in recent weeks as homeowners try to take advantage of rates that could save them hundreds of dollars a month in payments. Many local homeowners, however, are finding they don’t qualify for new loans as home values have fallen and loan standards have gotten more strict, local mortgage brokers and loan officers said.”

“‘The problem right now with the guidelines so conservative, a lot of people would like to refinance but just can’t,’ said Ken Dolan, VP for Bank of America Mortgage in Virginia Beach.”

“Dolan estimated that half the people who call wanting to refinance won’t qualify. And some of those who apply will be turned down. The biggest problem, he said, is falling home values in the region. ‘Consumers being underwater is a big problem,’ he said. ‘It’s almost like they’re in a sense of denial for the value of their home.’”

“A statewide organization that provides classes and counseling for homeowners is eliminating foreclosure prevention from its services, a spokeswoman said Monday. Community Housing Partners, which has an office in Virginia Beach, has offered counseling to troubled home-owners as a wave of foreclosures hit the state and Hampton Roads.”

“‘Foreclosure counseling could take up a lot of time,’ spokeswoman Melissa Byrd said. ‘… But rather than giving part of our energies to several areas, we decided to focus on one area.’”

“The group had offered a range of foreclosure prevention services, including helping homeowners negotiate loan modifications. Now it will no longer be part of the Hope Now alliance of housing counselors approved by the Department of Housing and Urban Development. ‘It may seem coincidental with what’s going on in foreclosures,’ Byrd said. ‘It has more to do with re-creating our business model. We want to teach people how to avoid getting yourself into a foreclosure situation altogether.’”

The Baltimore Sun from Maryland. “Maryland’s jobless rate rose to a nearly 17-year high of 6.7 percent last month, reflecting continuing economic woes in a deepening recession, the Labor Department said Friday. While Maryland has fared better than many states, its unemployment has steadily risen as turmoil in the housing, construction and financial markets has widened.”

“James Anderson has been out of work since November, when he was laid off after 17 years as a driver for DHL Express. Anderson said he has been living on unemployment benefits and a small severance, with the last check to arrive this week. The 37-year-old Baltimore resident has been to four interviews, but most employers want him as a part-time employee, he said.”

“‘I’ve got savings, but I can’t live off it,’ he said. ‘If you don’t replenish it, you’ll sink. I worked hard to get my house and my car. I don’t want to lose those things.’”

The Daily Times from Maryland. “On the edge of Scarboro Creek, overlooking the Chincoteague Bay, Creekside at Public Landing would have been a nice place to call home. The 37-lot subdivision planned by Realtor Todd Burbage would have been nestled into 232.2 acres of wetlands, fields and forest. But while the plans have gained county approval, nothing will ever be built.”

“Several years ago, developers were approaching local governments with grand plans for new communities or expansions to existing ones. Now the same people are waiting out the slump, using the time to upgrade infrastructure or find new uses for the land that is otherwise sitting empty.”

“Snow Hill officials know the situation all too well. In 2004, Snow Hill annexed 1,200 acres for the Summerfield development that was set to begin sales of the 2,000 residential and commercial lots in late 2005. Phase one of the project, which would have built 300 homes on the south side of town, was reviewed by county planners in December of 2006, and has reserved water rights. But construction has yet to begin for either the 300 homes or the town’s new wastewater treatment plant that developer Mark Odachowski committed to build at his expense.”

“Meanwhile, at Grand View Farms, the community’s main thoroughfare — Grandview Drive — winds around 168 acres on the south side of Public Landing Road, almost across the street from the Creekside property. It was supposed to link the development’s planned 62 lots and is complete with stop signs and cutouts for driveways.”

“But days, weeks, months can go by without a car traveling the road. The subdivision was recorded by the county in March 2006 and the owner, Nichols Development Corp., was given permission to start building. However, three years later, the land is overgrown and no houses have been constructed.”

“Local developer Troy Purnell — who owns Purnell Crossing and Decatur Farms in Berlin — said that the last thing Worcester County needs is more new homes. ‘I think we are at the point where we need to clear out some of the inventory we already have,’ said Purnell, who is also a Berlin town councilman. ‘There are an awful lot of properties on the market already.’”

“In the late 1990s and early 2000s Purnell said there was a building boom on the Shore fueled by loose credit and people seeking second homes or a place to retire. By the end of the summer of 2005, Purnell noticed his properties weren’t selling as well. ‘There were not as many phone calls, not as many buyers, not as many contracts being written,’ he said. ‘By the beginning of 2006, it got noticeable that there was something going on.’”

“At River Run on Beauchamp Road, all of these conditions have stalled the growth of the community. In January, the development’s owner Lewis Meltzer told the Worcester County Planning Commission that the community has not had a real estate sale in a year and a half.”

“‘People aren’t even driving around looking at real estate anymore,’ said Hunt Crosby, the community’s marketing director.”

“‘The down side of it for us that it’s tough out there,’ he said. ‘The great thing for the customer is that there are some great deals right now.’”

“Gregg Holland, president of Coastal Association of Realtors agreed. ‘This is a great time to buy a home, second home or condominium and purchase them at 2004 prices, in some instances,’ he said.”

The Charlotte Observer in North Carolina. “Charlotte real estate lawyer Victoria Sprouse, accused of participating in a multimillion-dollar mortgage fraud scheme, took the stand in her own defense Monday, weeping as she denied committing any crimes. ‘There was no reason for me to do this,’ Sprouse told jurors. ‘This has ruined my life.’”

“In tears, she recounted how her arrest in the federal case also has crushed her business. She told jurors she used to conduct 3,000 mortgage closings a year. Now she does three to five a month. ‘I’ve been financially ruined,’ she said.”

“The 38-year-old real estate lawyer is charged with bank fraud, mail fraud and money laundering. If convicted on all the charges, she could spend more than 25 years in prison. Prosecutors have said Sprouse contributed to a wave of foreclosures in the Charlotte area, and that such frauds have played a significant role in the banking meltdown that has crippled the U.S. economy.”

“Sprouse told jurors that she depended on her paralegals to prepare documents properly but acknowledged that she hadn’t closely supervised them. She said she spent much of her time in closings. ‘I couldn’t keep up with everything,’ she said. ‘I was working too much. I was signing a lot of documents, and I wasn’t paying any attention to what I was signing.’”