The Housing Bubble

It’s Friday desk clearing time for this blogger. “Local communities that once were among the fastest-growing in the nation became virtual ghost towns when the recession hit, leaving builders with a deep overhang of empty new houses and sweetly named subdivisions little more than undeveloped weed fields. The Great Recession hit harder than anyone could have expected, especially because the area survived two previous downturns relatively unscathed. Economists say that perception created a false sense of security for home buyers who assumed prices would keep rising.”

“Kimberly Miller, for example, was working for a Twin Cities home builder who helped persuade her to buy a townhouse in Prior Lake for about $235,000, even though she really wasn’t ready to own a home after going through a divorce. ‘I just signed on the dotted line,’ she admits. Even then, she thought she paid too much, but prices in the area were only going up. ‘I thought of it as an investment, I thought I would buy it and flip it in a few years.’”

“She bought it with a five-year adjustable rate mortgage assuming that she’d simply sell the house or refinance it when the mortgage term expired. She hasn’t been able to do either. She eventually lost her job, was unemployed for five months, though she’s working again. The house is on the market for $109,000, and she’s hoping that her lender will approve a short sale offer. She calls signing that short-term mortgage, ‘the stupidest thing I ever did.’”

“Amid a glut of 5,000 unsold condominiums in Miami, developer Jorge Perez is doubling down. Betting that buyers from Latin America and Europe will lead the South Florida real-estate market out of its funk, Perez has been snapping up distressed properties and buying new sites for development, the Wall Street Journal reports.”

“But Perez’s spending spree isn’t impressing everyone. Buyers seeking to get their deposits back from stalled Perez projects say the condo magnate has pleaded poverty. ‘Before they start building again, I want my 200 grand back,’ Joseph Ferrelli, a buyer at Perez’s Trump Towers in Sunny Isles Beach, told the Journal.”

“A small group protested in front of a Downtown bank Thursday, calling on big banks to do more to resuscitate the economies of both the state and the nation. One of the protesters was Virginia Holwell of Peoria, who lost her job after 30 years and was unable to secure an adjustment on her home and could now face foreclosure. ‘The banks told me they’d help me,’ Holwell said. ‘They’d help me out of my house.’”

“After repeatedly asking for additional help from Chase and losing her forms multiple times, Holwell said that the bank told her that the best course of action was for her to liquidate her property. ‘They wanted me to just get rid of everything,’ Holwell said.”

“Rhode Island home-sales statistics for the first quarter of 2011 show a still-fragile housing market. And a Providence Realtor who specializes in foreclosed properties says that recovery won’t occur until the state’s ’shadow inventory’ of foreclosures is resold, and ‘banks start lending again.’”

“Joy Riley, broker/owner of Westcott Properties, a Providence agency that specializes in the REO (real-estate-owned, or bank-owned foreclosures) market said more foreclosed properties should be on the market, given the amount of foreclosures that have occurred in Rhode Island. But Riley said the shadow inventory has grown because of government programs to prevent or delay foreclosures, title problems with many properties, and problems associated with the robo-signing scandal and other legal challenges to foreclosure actions.”

“Riley said ‘investors are snapping up the well-priced inventory,’ but ‘we’re not seeing the foreclosures coming in for REO inventory.’ ‘Where are the foreclosures?’ she wondered.”

“Nampa’s Amanda Peterson is a busy real estate agent these days. Peterson works for Team Realty in Nampa, where she says a steady supply of foreclosed homes makes up the majority of her sales. Here’s the twist. Real estate experts also say banks have been stockpiling thousands of foreclosures here in the Treasure Valley, and haven’t been putting them on the market for fear of flooding it.”

“On Thursday, Peterson was showing prospective buyers a value-priced, foreclosed home in the Washington Avenue neighborhood of south Caldwell. A steal of a deal at just over $71,100. The charming four bedroom sits on half an acre and is now owned by the government through the HUD program. Even though the home has some roof damage, Peterson says it won’t last long on the market.”

“‘Competition is not only stiff because of the good prices and interest rates, but because of the inventory right now,’ Peterson said.”

“In April, 55,869 California properties were impacted by a notice of default, a pending foreclosure listing, a notice of trustee sale, a notice of foreclosure sale or were REO properties that had been foreclosed on and repurchased by a bank. David Tovar, a Realtor in Hacienda Heights, said the REO situation would likely be a lot worse in California if banks opted to put all of their bank-owned properties on the market at once.”

“‘I think they learned the first time that they are working against themselves when they do that because when all of those REO properties are out there it causes property values to drop down,’ he said.”

“Foreclosure filings in Shasta County jumped for the second straight month to 412, RealtyTrac reported today. The 146 new bank-owned properties recorded in April was the highest for any month in the six years RealtyTrac has followed foreclosures in Shasta County. What’s more, notices of default — the first stage in the foreclosure process — were up 11 percent from March to 166.”

“Daren Blomquist, a spokesman for RealtyTrac, said the jump in bank-owned properties could be another sign that banks are manipulating the market. ‘I think that is an indication there is a backlog of foreclosures that has built up over the last couple of years and lenders are being intentionally selective when they complete the foreclosure,’ Blomquist said.”

“It took 330 days to complete the average foreclosure process in California during the first quarter, up from 262 days in the first quarter of 2010. CSU Channel Islands economist Sung Won Sohn agreed that delays in foreclosure processing caused the dip in activity. ‘I think we should really expect significantly more foreclosures to come and that’s one of the reasons why home prices are not going to be going up,’ he said. ‘They will move sideways to down on the average because of the avalanche of foreclosed properties and also the short sales.’”

“Linda Mills, president of the Conejo Simi Moorpark Association of Realtors, said she is seeing fewer distressed properties on the market statewide. ‘In March, the median price of non-distressed properties was approximately 41 percent higher than short sales and 88 percent higher than foreclosures,’ she said. ‘Because non-distressed properties are selling for much higher than the short sales and foreclosures and the percentage of distressed properties is decreasing, you will see a shift toward a higher median price in Ventura (County).’”

“City leaders are divided over whether Santa Fe should relax affordable-housing requirements in the midst of a housing slump. Currently, the developer of a housing project is required to build and sell 30 percent of homes in a subdivision within a certain price range to income-qualified buyers. Mayor David Coss isn’t convinced that banks would be any more open to lending for development at the 15 percent level for affordable housing than they are at the current level.”

“‘What I have heard has been pretty glum — that they are just not able to lend, and they cannot lend on speculation and the idea that if you build it they will come,’ he said.”

“City Councilor Rebecca Wurzburger said she rallied councilors behind the plan because she’s concerned the 2005 rules are further stalling a sluggish economy. ‘This is my trying to come up with something that would, in the short term, see if we can get some affordable housing, which is better than none,’ she said.”

“If the numbers showing housing prices slumming it around their spring 2009 lows aren’t troubling enough, then the surrounding context certainly is. The federal government spent trillions of dollars lifting housing — the recession’s great instigator — out of its trough. And now that home prices have collapsed again, the feds have far fewer tools available to prop them up again.”

“The White House nationalized Fannie Mae and Freddie Mac, wrote the two mortgage lenders a blank check, and told the two firms, which were collapsing, to increase their book of business. The Federal Reserve, dissatisfied with the impact of giving banks buckets of free money, bought up $1.25 trillion in mortgage bonds, and then another $600 billion in US government debt, all in a bid to depress mortgage rates.”

“Congress passed a lucrative tax credit for homebuyers. The incentive pushed up prices and crammed a year’s worth of buying and selling into last spring, but in the credit’s absence, home prices have retreated to near their post-crash lows. Home prices in Massachusetts are currently off their highs by 19 percent; in Rhode Island, they’re down by more than 31 percent.”

“Federal policy is, in fact, pulling in the direction of fewer home sales and lower values. A tax deduction on mortgage interest is a popular target for deficit hawks. The Obama administration has announced plans to cut the Federal Housing Administration in half. New federal regulations will make mortgages more expensive and tougher to qualify for, driving down housing sales. Fannie and Freddie, the nationalized mortgage giants that backed 90 percent of the mortgages written in the year’s first quarter, are being driven out of business.”

“At this rate the pain of the current housing crisis is never going to end. RealtyTrac just came out with their April Foreclosure Market Report and on a national basis foreclosure activity reached a 40 month low as a result of ‘massive delays’ in the foreclosure process, NOT because of any improvement in the housing market.”

“The fact that lenders are first pursuing alternatives to foreclosure is probably a good thing. The fact that the rest of the process is taking so long is not a good thing. God knows we need to get this mess over with ASAP.”