The Housing Bubble

A report from the Alaska Dispatch. “Alaska saw 8,988 home loans in 2009, according to preliminary data from the state Department of Labor. That’s down from 9,502 in 2008 and way down from the 12,749 signed back in booming 2006. There were fewer buyers in 2009 because people were waiting to see what prices were going to do, according to Gail Stafford, the president of Alaska Mortgage Bankers Association.”

“Alaska mortgage professionals had a few different explanations for the drop in loan totals, citing a range of factors from tightened lending practices to buyer anxiety over prices. When the economy strays into rough patches, said James Wiedle, a planner at Alaska Housing Finance Corporation, ‘lenders are going to get more risk-averse.’”

The Ottawa Citizen in Canada. “It’s March, when home buying fever strikes hard, and Ottawans are snapping up everything from hip urban condos to sedate retirement townhomes in the ‘burbs. Interest and mortgage rates are at a record low, making home ownership irresistible. Prices, meanwhile, are creeping steadily higher, a goad to buy now before they soar out of sight.”

“Across the country, it’s the same story. With the recession apparently already ancient history, the housing market has hit record highs over recent months. The average price for a house in Canada is now $340,000, a breathtaking amount of money when you think about it.”

“At the same time, we’re awash in IOUs. In the past decade, mortgage and consumer debt in Canada has more than doubled to a record high of $1.4 trillion at the end of the third quarter of 2009. Even here in traditionally cautious Ottawa, bankruptcy experts and credit counselling services are hopping, staff shaking their heads over stories like the one about the couple facing the threat of insolvency with a $300,000 home to their name and a fully outfitted travel trailer in their driveway.”

“But it’s not certain Canada’s booming housing market means we’re in a bubble. ‘Recent house price increases do not appear to be out of line with the underlying supply-demand fundamentals,’ David Wolf, an adviser to the Bank of Canada, says. ‘We see the housing market requiring vigilance, not alarm.’

“In an interview with Maclean’s magazine, Scotia Capital economist Derek Holt said that as many as half of all new mortgages are either variable rate or carry a one-year term. That could leave a lot of mortgage holders in straitened circumstances if rates jump. Brian P. Doyle, president of Ottawa’s Doyle Salewski, specialists in credit counselling and trustees in bankruptcy…says those who grew up in middle-class homes tend to have high material expectations. What’s more, we’ve become a nation of spenders, putting away just two per cent of our paycheques; that number was 20 per cent a couple of decades ago. And we like our credit cards.”

“The other mistake buyers, especially first-timers, make is loading up on goodies. After all, how can you have a new house without new furniture, a big-screen TV, a shiny SUV in the driveway? Low interest rates make it seem easy. ‘The Smiths have it all, so why can’t we?’ is the unspoken refrain of some buyers, says Dan Kosabeck, manager of mortgage development for TD Canada Trust. Don’t-pay-a-cent-events just add to the temptation. ‘All of a sudden, the bills start coming in, and even an extra $130 a month could break a budget.’”

The Canadian Mortgage Broker News. “Rising vacancy rates have been good news to renters in the British Columbia apartment market as new supply has come online. While vacancy rates are climbing, up as high as 8 per cent in Chilliwack, Avison Young says prices have stabilized and sellers have adjusted their expectations. ‘As a result of the lower prices in certain submarkets, the bid-ask gap will likely continue to narrow, leading to more sales as effects of the global financial meltdown and U.S. credit crisis soften,’ says the Avison Young Multifamily Investment Report on BC.”

“According to Businessweek Magazine, Vancouver faces $700 million in financing for the luxury condos used by Olympic athletes in February, and the city needs to sell 474 units for as much as $10 million each to recoup its lending.”

The Idaho Statesman. “Few if any condominiums in Downtown Boise were selling in August, but since then at least 25 sales have closed or are pending. Units at CitySide Lofts sell from $159,900 to $350,000, down about 20 percent from prices of $199,000 to $450,000 two years ago. ‘This year has started out great,’ said Lisa Lyons, director of sales for CitySide Lofts where 10 units have sold since September and three sales are pending. ‘It seems we’ve hit a price, and with the combination of low interest rates and available FHA financing, we’ve found the market.’”

“On the upper end of the spectrum, Royal Plaza sold a condo last week, developer Bob Hosac said. Royal Plaza filed for Chapter 11 bankruptcy in December and owes its homeowners association $34,000 in dues on unsold units. Prices range from $400,000 to $800,000, down from $469,000 to $925,000 two years ago.”

“At The Jefferson at 4th and Jefferson streets, prices were $287,000 to $1.1 million two years ago but have been reset to $183,750 to $935,000, said Jacque Neef, sales manager. Several projects finished in the past two years have plenty of units to sell for now. And developer Clark said he likely will restart interior construction of his Crescent Rim condos this summer. Clark halted sales in 2008 after several buyers backed away from purchase plans.”

“Sales managers, agents and developers for five projects Downtown said most prices have dropped between 15 percent and 30 percent from 2007. ‘That’s part of the reason I moved on it when I did,’ said Taylor Hunt, who hopes to close in March on a 950-square-foot condo in the historic Gem Noble Lofts. The price is about $200,000. ‘The price was right, and the interest rate was excellent,’ said Hunt, who has been renting in the North End.”

“As his fellow developers around the country can attest, Jeff Hawkes couldn’t have picked a worse time to open Hawks Landing, a new urban lifestyle development in the foothills overlooking the Snake River Valley. But while the construction industry here dropped off with everybody else’s, leaving some 1,369 construction workers – nearly a third of the work force – out of work, Hawkes may have found the perfect spot for the times.”

“Hawkes has reason for optimism. In the past five weeks, after he and his development’s homebuilders dropped their prices to compete with traditional subdivisions in the valley, seven homes have sold. They are confident they will keep selling as buyers learn what a bargain they have. ‘The lights got turned off in 2008, but we persevered,’ said Rob Phelps of Phelps Homes. ‘Now things are turning around.’”

“A lot of Idaho Falls construction workers are still waiting to come back to work, Phelps said. The surplus work force means employers can be choosers. ‘We had 800 resumes for 60 jobs,’ said Tom Dogal, a department manager for Idaho Cleanup Project’s Idaho Nuclear Technology and Engineering Center, the old Idaho Chemical Processing Plant.”

“Max Bosworth at Max’s Gun Shop said business is hot and cold. He knows the region hasn’t been immune to the economic downturn. Last year, Bosworth loaned out more money in his pawn business than ever before, and the rate of failure – when people couldn’t pay him back – rose to 20 percent from the traditional 5 percent. He pawns only guns and fancy saddles, but people come in trying to get him to buy everything from video games to jewelry.”

“‘I see people struggling to make ends meet,’ he said. ‘People who have money are more cautious.’”

The Billings Gazette in Montana. “Vacancies for offices and warehouses in Billings have tripled since the real estate boom. ‘We thought we’d be doing better, but these numbers show we’re not immune,’ NAI Business Properties partner Al Koelzer said. ‘In commercial real estate nationally and in our case, business declined 80 percent in total dollars of real estate leased and sold. It just stopped.’”

“If there had been enough skilled workers to build everything developers wanted to build during the boom times of 2005 and 2006, Billings would have a much higher commercial vacancy rate, according to Paul DuCharme, a commercial broker. Skilled workers were so busy then that DuCharme said he and his wife had a difficult time getting the labor to build their house.”

“‘The joke was I got a plumber on Wednesday, but he forgot to tell me which month,’ DuCharme said.”

The Casper Journal in Wyoming. “Central Wyoming’s Economic Forecast 2010 packed the banquet room at the Best Western Ramkota Inn, and much of the conversation during the forum revolved around how natural gas prices and production affect the local economy. Buck McVeigh, administrator of the State of Wyoming Department of Administration and Information, Economic Analysis Division, said that early in the recovery, employers are ‘hesitant to hire. Unemployment is going to hang around for quite awhile.’”

“That mark was 8.2 percent in Natrona County in December of 2009, and 7.5 percent statewide. State income from the mining industry ‘really took a nosedive,’ McVeigh said. He said home prices are ‘bound to decline even more.’”

“‘We’ve had a lot of challenges we haven’t had to face before,’ long-time banker Mark Zaback, president of Jonah Bank of Wyoming, said. He said loan losses rose for the 12th consecutive quarter to end 2009. Outstanding loans continue to decline.”

The Bellingham Herald in Washington. “Whatcom County home prices fell nearly 7 percent in 2009 as increasing foreclosures, a slower economy, and a softer housing market continued to take its toll. Julia Hansen, an economics professor at Western Washington University, noted that Bellingham-area prices were down only 8.6 percent from the peak, while Seattle-area prices were down 15.1 percent, suggesting Bellingham’s drop has been a fairly modest correction to this point.”

“‘There is continuing uncertainty about whether Bellingham will avoid a more significant correction. Based on the fundamentals, local prices still look high,’ Hansen, who is also editor of the annual Whatcom County Real Estate Research Report, said in an e-mail. ‘The ratio of housing price-to-income remains well above historical levels, for example. On the other hand, the single-family market in the city of Bellingham was not overbuilt during the boom, and so didn’t start the downturn with huge inventories of housing to work off.’”

“Unemployment and foreclosures will be key indicators for what happens next, said Glenn Crellin, director of the Washington Center for Real Estate Research at Washington State University. ‘What is happening in the economy at the end of April may have more of an impact on the real estate market than the federal tax credits coming to an end,’ he said.”

The Kitsap Sun in Washington. “Unemployment in Kitsap County rose to 8.3 percent in January, making the first month of 2010 one of the worst Januarys ever for joblessness. About 10,360 people in Kitsap were seeking work in January, up from 8,600 people in January 2009. Thirteen hundred jobs were lost in Kitsap in January.”

“In the last year, 2,600 jobs have been lost in Kitsap — about 1,000 in construction and another 700 in retail and wholesale trade. ‘We’re definitely in some uncharted territory for Kitsap County, sorry to say,’ said Jim Vleming, a state economist specializing in Kitsap County.”

“Charles Fong, manager of Bubble Island, a smoothie and milkshake shop at Kitsap Mall, also has had to reduce his staff. He has taken on much of the load himself and is at the store from 8:30 a.m. to 7 p.m. seven days a week. ‘Throughout the mall, everybody’s hurting,’ Fong said.”

From KGW in Oregon. “The federal government’s plan to rescue our housing market has been moving like molasses. Lenders continue to foreclose on properties at a record clip. In Oregon, banks have not been required to tell homeowners why they’re losing their homes. ‘Look at this beautiful notice to default,’ said Joanne Smith as she holds a notice from her lender to foreclose on her historic Salem home. ‘I’m not even upside down, I have equity,’ said an exasperated Smith.”

“Smith’s troubles started when her monthly mortgage payments mysteriously doubled about a year ago. It took months to clear up what she says was the lender’s mistake. (and) ended up damaging her credit rating. Now, her adjustable rate mortgage payments are jumping each month, but her lender won’t lower her interest rates because of her bad credit.”

“Smith has been spending her retirement account money to cover her higher mortgage payments, but if they’re not lowered soon, she’ll lose the home she purchased 8 years ago. ‘I’m still not modified,’ said Smith after trying to work with her lender for nearly one year. She claims her lender keeps losing her paperwork. It’s one battle after another and she could lose her home in a matter of weeks. ‘We must do something in this country or this civilization is going to fall apart.’”