The Housing Bubble

I realize this isn’t the end of the decade, but so many papers have articles like these, I decided to run with it. Tomorrow we’ll have a predictions thread, and this is a Thursday desk clearing post. “This was the year, finally, that promised relief, opening with foreclosure moratoriums and a highly touted Obama administration initiative to keep millions of desperate borrowers in their homes. But 2009 ends with the same old troubles. Woodland, Calif., borrower Jennifer Quigley made six months of trial modification payments to Wells Fargo, only to get a permanent modification offer that raised payments to 54 percent of her family’s gross monthly income, not the targeted 31 percent.”

“‘I said, ‘This isn’t our income.’ They said, ‘That’s what’s in our computer,’ said Quigley, laid off a year ago from UC Davis. ‘We’re right at the end of our sanity. Come January we’ve been doing this for a year with no resolution.’”

“A’Leah and Randall Knight, of Bend, built their 1,700-square-foot home practically themselves five years ago. An appraiser valued it at $350,000 just two years ago. The market was booming and investing in a second home made sense. Even worse, her husband recently had a severe pay cut, and their renter stopped paying rent. They sold the rental house. Now, trying to short-sell their home to help pay off their $300,000 debt, they have it on the market for $136,900.”

“”We bought a rental house, and then the market just crashed,’ Knight said.”

“First came foreclosure sales, then short sales. Now Central Florida is seeing more half-finished homes for sale: bare-stud, bare-yard houses abandoned by their builders and left to languish on the market. ‘If I had known three years ago that my business would be based on selling short sales, foreclosures and half-built houses, I would have told you you were smoking crack,’ said Kelly Price, a veteran real-estate broker based in Winter Park.”

“It’s been a wild and eventful past 10 years in the East Valley. Nothing defined the decade more than the area’s housing bubble. The double-digit appreciation rates during the first half of the decade had real estate agents driving investors through neighborhoods while they snapped up houses in hours or days. It was said agents for buyers and sellers were so hot to move on deals they were filling out the paperwork using car trunks as desks. Buyers didn’t think twice about the home’s condition, and sellers did dances over the amount of money they were getting.”

“Then the crash came. And house prices slid for most of the rest of the decade. Foreclosures led to blight in many neighborhoods. There are still about 50,000 homes on the market in the Valley.”

“Call it the end of the age of exceptionalism, Flagstaff-style. Entering 2009, Flagstaff appeared to cling to the notion that somehow the Great Recession was going to pass it by. It was only a matter of time before Flagstaff’s government- and tourist-dependent economy went on the ropes, too. The first signs early in the year came as housing values declined, making new home equity lines of credit harder to come by. That caused retail spending to plunge by double-digit percentages compared to the previous year. Flagstaff’s municipal budget went into a tailspin.”

“The idea that Flagstaff could somehow remain above the economic fray was wishful thinking that, in hindsight, might have cost the region valuable time in confronting and coping with the recession’s major impacts.”

“After decades of leading the nation in growth, Nevada may now be losing population. A new report from the state’s demographer estimates Nevada lost more than 27-thousand people in the year ending July First. ‘This is a new phenomenon for Nevada.’ says state Demographer Jeff Hardcastle . ‘We used to joke Nevada was the one state in the nation where a three percent growth rate was a recession.’”

“‘We peaked in about 2006 with construction employment,’ says Hardcastle, ‘and if you recall we got hit by the housing bubble in 2006, then got hit by the gas price surge in 2007 which deteriorated the tourism industry and then got hit by the Lehman Brothers and financial crisis nationally.’”

“I’ve come to visit a brand new housing development, just off the main street of a small town 17 miles from Dublin city centre. The signs at the entrance promise ‘The Best of Everything’. But there’s no one living here. It’s a scene replicated hundreds of times around the country. As the New Year approaches, the question is: What do we do now with these ghost estates?”

“First, you have to ask why we were mad enough to build all these surplus homes in the first place. Let’s go back to 2006 when the Central Statistics Office identified 266,000 empty residential properties — representing 15pc of all homes. It was obvious that supply already exceeded demand and yet, in that same year, property fever still gripped the nation, and people slept in their cars overnight to be first in a queue to buy within commuting distance of Dublin.”

“As the first decade of the 21st century draws to an end, many Northern San Joaquin Valley residents say: Good riddance. This decade has been so economically brutal that most can’t wait for it to be over. Lots and lots of homes were built. In Stanislaus County alone, about 25,000 homes and apartments were constructed. BATs — ‘Bay Area transplants’ — swooped in to buy those homes. Those newcomers inspired commercial developers to erect shopping centers throughout the region.”

“When the inflated housing bubble burst in 2006, the Northern San Joaquin Valley’s entire economy imploded. Since then, more than 51,000 homes in Stanislaus, San Joaquin and Merced counties have been lost to foreclosure, costing lenders more than $19 billion in unpaid mortgages. About one in eight homes in the region have been repossessed, the worst foreclosure rate in the nation.”

“We’re also worst when it comes to home value declines. From the price peak in December 2005 to this spring’s bottom of the market, homes lost about two-thirds of their value. Because of that, more than 81 percent of the region’s homeowners owe more on their mortgages than their houses are worth.”

“And unemployment during 2009 has been more than double what it was at the start of the decade. Stanislaus’ rate in November 2000 was just 7.7 percent, but it reached 17.2 percent last month.”

“A decade ago, people’s biggest fear was Y2K. Let’s hope something so trivial will dominate the news in the decade to come.”

“How did Fannie and Freddie help cause the crisis? In 1990, outstanding mortgage debt held was $3.805 trillion. Then, Fannie and Freddie weakened lending standards by handing out unsecured loans to unqualified borrowers. And, by the end of 2007 as the crisis was reaching its peak, total mortgage holdings had risen to $14.568 trillion, a staggering 383 percent jump.”

“Today, total mortgage holdings stand at $14.418 trillion. A full 75 percent of that—roughly the amount Fannie and Freddie are responsible for financing—is $10.8 trillion! Add to that the securities which were sold by the GSE’s, and it’s larger than the Gross Domestic Product. Taxpayers could never, ever possibly cover losses on that scale.”

“There are actually more losses on the way. Reported Business Week yesterday, ‘Foreclosure filings in 2009 will reach a record for the second consecutive year with 3.9 million notices sent to homeowners in default, RealtyTrac said Dec. 10. This year’s filings will surpass 2008’s total of 3.2 million.”

“The government shouldn’t reward liars. But that’s the effect of changes to the Obama administration’s failing program to help homeowners modify their mortgages. Until recently the rules were clear: if you grossly understated your income to qualify for the program, you had to restart the loan modification process. It made sense. After all, we got into this housing mess partly because too many people were dishonest about how much they made.”

“Fast forward to today. The federally funded Home Affordable Modification Program was aimed at getting banks to rework mortgages for homeowners in order to slow the pace of foreclosures. The program isn’t working like it’s supposed to. Since March, just 31,000 homeowners have won permanent relief. One big reason why is that lenders are doing what they should have been doing all along - requiring things like proof of income.”

“How’s the government responding? By letting homeowners who fudge their income numbers off the hook with little more than a wink and a nod. ‘This isn’t the kind of person the government should want to help,’ said Dean Baker, co-director of the Center for Economic and Policy Research.”

“Fitting that while the first decade of this century was dribbling away, the mendacious Eldrick “The Weasel” Woods (The Golfer Formerly Known as Tiger) was watching his marriage and his endorsement deals fall apart, the Heenes were preparing for jail, Bernie Madoff was already in jail and George W. Bush was as invisible as it is possible to be for a man who was president of the United States only 11 months ago.”

“Such is the unravelling of the Decade of Deception. Of fabrication, mendacity and untruth. Of Enron and Bernie Madoff, Earl Jones and Vincent Lacroix. Barry Bonds and Roger Clemens. And the filthy rich bankers of Wall St., who came up with a filthy lie – renamed toxic assets as ‘derivatives’ and very nearly brought the global economy to its knees.”

“At the beginning of this decade, I wondered aloud what we were going to call the first 10 years of the new millennium. The Aughts? Naughts? Zips? Nothings? After 10 years of systematic, percolating, corrosive lies, the appellation is simple. The only name that fits the past decade is the Zeros.”

“As the first decade of the 21st Century ends, a whopping 50 percent of Americans have a negative impression of the past 10 years, compared with 27 percent who hold a positive view. In a survey released this month, the Pew Research Center for the People & the Press found results ‘in stark contrast to the public’s recollection of other decades in the past half-century.’”

“The decade was speckled with both bubbles of prosperity and high-profile, high-dollar cases of white collar crime that wiped out consumers, investors and workers by the billions. The breadth and depth of discontent with the current decade is reflected in the words people use to describe it, Pew researchers found.”

“‘The single most common word or phrase used to characterize the past 10 years is downhill, and other bleak terms are common. Other, more neutral, words like ‘change,’ ‘fair’ and ‘interesting’ also come up, and while the word ‘good’ is near the top of the list, there are few other positive words mentioned with any frequency,’ the study said.”

“Wealth manager Paul Schatz said there were multiple bubbles and busts over the decade involving the so-called dot.com frenzy over Internet startup companies and technology stocks, housing prices, mortgage derivatives, over-leveraged investment banks and commodities. ‘My one word for the decade: bust,’ he said.”