The Housing Bubble

The Sea Coast Online reports from Maine. “In the five years following 2001, Las Vegas was one of the country’s biggest boom towns. Housing values soared. Banks lent to anyone with a pulse. Fraud was endemic. Buyers deluded themselves about how the market would perform. Then in 2006 the bubble burst. York has seen housing prices decline in recent years, too. Between 2007 and 2010 the average price of homes sold in York dropped from $606,396 to $482,580.”

“To learn more about the local housing market, I contacted Greg Gosselin of the Gosselin Realty Group. He told me that between 2005 and 2009, the median price of single family homes in Maine decreased 14 percent, but in York County it dropped by 22 percent. In the town of York, by contrast, the price drop averaged just 8 percent though this number is distorted by the sale of a single $4.8 million home in 2009.”

“This does not mean, however, that everyone in York escaped the collapse of the housing bubble. The fact that homes in York are being foreclosed on tells you that people are suffering. Gosselin identified 17 houses in town currently in the foreclosure process. ‘That’s not the full list either,’ he noted, ‘because here as everywhere there is a shadow inventory of homes that have been abandoned.’”

“One home we visited in Cape Neddick has been abandoned for two years; vandalism and crime are real threats. The owners obviously left in a hurry as television sets and appliances, magazines and files, games and toys lay about as though the owner might soon return. Built in 1985, this house has an assessed value of nearly $450,000 and yet it sits empty.”

“How do foreclosures happen? Three months of skipped mortgage payments, unanticipated medical expenses that force people into bankruptcy, loss of income because of layoffs or business failures. To paraphrase Tolstoy: every foreclosed family is unhappy after its own fashion.”

Crain’s New York Business. “It will take more than a decade to clear up all the shadow inventory in the residential real estate market in New York state, according to new report released by Standard & Poor’s Ratings Services. That is more than three times longer than it will take the rest of the nation, a difference that the report largely attributes to the greater time it takes to foreclose on a property in New York.”

“‘The good news is delinquencies aren’t noticeably higher and the frequency of loans defaulting is lower than other states,’ said Diane Westerback, a managing director at Standard & Poor’s. ‘The bad news is once these loans fall into delinquency, they are hardly moving.’”

“According to the report, shadow inventory in Brooklyn will take the longest to unwind at more than 17 years. Bronx was close behind at 16.5 years, and Staten Island recorded 12 years. Manhattan fared the best, coming in at a little more than eight years.”

The Record in New Jersey. “Home prices dropped 3.1 percent from February 2010 to February 2011 in the New York metropolitan area, which includes North Jersey, the Standard & Poor’s Case-Shiller index reported. The median prices of a single-family home rose 1 percent in Bergen County, to $425,000, from February 2010 to February 2011. The number of sales rose 15.3 percent in that period. In Passaic County, prices declined 16.5 percent, to a median $225,194, while the number of sales declined 6.5 percent.”

“These numbers come from the N.J. and Garden State multiple listing services; Case-Shiller does not break out price data by county. The MLS numbers reflect the mix of properties sold in a given month and are affected by the number of higher- or lower-price homes sold. Case-Shiller is considered a more reliable number because it tracks the value of the same properties over time.”

“‘Prices in the New York metropolitan region are nearing 2003 levels, with no sign of stabilizing. It appears that last year’s tax credits provided a temporary – very temporary – respite from a downtrend that still has some distance to go,’ said Patrick O’Keefe, economist, J.H. Cohn, Roseland.”

“In another sign of the real estate slowdown, eight Rochelle Park condos once priced above $500,000 are to be auctioned next month with minimum bids of $125,000. The sale is the latest in a string of North Jersey auctions. ‘Like a lot of properties, it’s a victim of circumstance,’ said auctioneer Max Spann Jr. of the complex.”

“Construction on the 80-unit building started several years ago, when the housing market was booming. But as the market faltered, sales slowed. At the same time, builder Town & Country Developers of Woodcliff Lake ran into serious problems on several other projects.”

“Nationally, $17.1 billion worth of real estate was auctioned in 2008, up 48 percent from 2003, according to the National Auctioneers Association. This does not include sheriff’s auctions due to foreclosure.”

The Worchester Business Journal in Massachusetts. “It’s been easy in recent months for state officials to claim that the Bay State’s economy is on the upswing and well on its way to a full recovery. The foreclosure mess that has weighed the economy down for more than three years may not be over, according to the region’s bankers and real estate experts.”

“Much like it is in other areas of the economy, the job market still isn’t good enough to ensure that homeowners can’t fall into unemployment and eventually lose their homes. The problem is especially prominent in the Fitchburg-Leominster area, where unemployment lingers around 12 percent while the state’s overall rate is below 9 percent.”

“‘I do not think it’s over,’ said Martin Connors, president of Rollstone Bank and Trust in Fitchburg. ‘Unemployment nationally is close to 10 percent, and unemployment in Fitchburg-Leominster is close to 12 percent, and in a lot of the foreclosures we’ve been involved with, the common theme is job loss.’”

“Rollstone’s $325-million retail loan portfolio is about 64 percent residential loans. ‘It’s hard to think that it’s over when the economy is the way it is,’ Connors said.”

“Vincent Valvo, group publisher at The Warren Group, said foreclosure petitions slowed down in the middle of 2010. ‘It hasn’t been a situation where fewer people are being foreclosed upon, it’s a situation where the technicalities are slowing down the process dramatically,’ he said.”

“A moratorium on foreclosures by national banks because of lawsuits concerning faulty paperwork slowed down the rate of foreclosures. But Valvo argues that that could actually be a bad thing. ‘Anybody who has had a three-day cold or looked over at their co-worker that has been sniffling for months can appreciate the notion that you want bad things to pass quickly,’ Valvo said.”

The New England Business Bulletin. “Single-family homes sales in Massachusetts dropped 15.7 percent last month, marking the lowest number of sales for the month of February since The Warren Group began tracking data in 1987. ‘The local housing market has hit a bump in the road,’ said Timothy M. Warren Jr., CEO of The Warren Group. ‘Sales dropped sharply in February and we could see that pattern continue through the spring months ahead. Because of the severe winter weather that kept home shopping to a minimum, the market has been slow to heat up. To make matters worse, in the second quarter, we will be comparing sales to the height of the homebuyer tax credit. We had booming sales last year so the comparison will be tough to beat.’”

“The median price for a single-family home also dropped to $255,000 from $270,000 in February 2010. The year-to-date median home price is down more than 6 percent — dropping to $263,000 from $280,000 last year.”

The Daily Item in Massachusetts. “Claiming attorney David Zak did little to keep them away from foreclosure and charged them $4,500 for his services, Emilio Jimenez and his wife Dominica Mendez joined other foreclosure protesters in demonstrating outside Zak’s Revere office. The protest is not the only pressure Zak’s law firm and loan modification service is facing. A civil complaint filed by the state Attorney General’s office in Suffolk Superior Court states Zak ‘misled over 1,000 homeowners’ since February 2009 by promising them legal assistance and mortgage loan modification help.”

“Zak, the complaint states, ’sought to capitalize on the foreclosure and economic crisis and to prey upon Latino homeowners who are facing the imminent loss of their homes.’ Zak said he specializes in defending clients against foreclosure and offers loan modification services. ‘We have helped reduce mortgage payments by 35 percent to 50 percent for a minimum of 350 Massachusetts residents,’ he said.”

“Emilio Jimenez said he did not even have a chance to pay the first of three trial mortgage modification payments in March by Zak before the company holding the mortgage on his home filed a foreclosure notice.”

“Jimenez, speaking through translator Cristino Acosta, acknowledged he had not paid his mortgage on the house since August 2009 after his wife lost her job. But he said he stopped payments only after a previous trial modification arranged with loan holder PHH Mortgage Corporation did not result in a permanent reduction in his $1,590 a month mortgage.”

“‘We thought we were going on a five-year plan where, from the fifth year on, we would receive a permanently reduced payment,’ he said.”

“Jimenez went ahead and on March 28 made the first of three payments on the modified loan. Then he turned to Lynn United for Change, a local organization aiding people facing foreclosure, for help. United arranged to have foreclosure proceedings against Jimenez delayed while he pays his modified loan. In the meantime, the group is taking aim at Zak.”

“Without specifically naming United, Zak said non-profit organizations are working with federal agencies to counsel homeowners on mortgage modifications at the taxpayers’ expense. ‘What happens is banks know these agencies are ineffective because they don’t have attorneys who can file lawsuits,’ he said.”

“But Emilio Jimenez said his $4,500 payment to Zak got him little, if any, protection against foreclosure. ‘Even putting food on the table was difficult… but still he took $4,500 to save our house,’ Jimenez said.”