The Housing Bubble

The Chicago Sun Times reports from Illinois. “In 2008, a 25-year-old man named Volodymyr Kuchmiyov — a Ukrainian living in Chicago on a student visa — took out two mortgages totaling $675,000 and bought a couple of brand-new condos in a building on the city’s Northwest Side. Now, Kuchmiyov is enmeshed in a mortgage-fraud case that federal authorities brought after a Chicago Sun-Times investigation last year revealed that a Chicago congressman’s daughter bought an ‘affordable housing’ unit in the same development — even though she and her husband were making more than $90,000 a year. She then flipped the condo at a profit of 55 percent — after owning it for 14 months.”

“Kuchmiyov told the FBI that, as of 2008, he was making $3,300 a month. But, on a mortgage application he filed March 4, 2008, with US Bank, Kuchmiyov had reported his monthly income was actually more than twice that amount — $7,650. Exactly two months and one day later, on May 5, 2008, he filed an application for another mortgage, for the second condo, with National City Bank. On that mortgage application, he said his monthly income was $8,111.”

“Both of his condos are now in foreclosure. When the banks sued to foreclose on him, Kuchmiyov owed them a total of $670,353, court records show.”

The Des Moines Register in Iowa. “Matt Cummings hopes to break even on the sale of his West Des Moines condo. He knows it’s going to be close, though, with an asking price of $102,900, already $7,000 less than he paid in 2005. ‘I’m looking to basically get it sold and to move on,’ said Cummings.”

“Pennie Carroll, a Re/Max real estate broker, said agents are having difficult conversations with home sellers these days. ‘Before, it was a shock to sellers, but now most understand the market has changed,’ she said. ‘It’s a very competitive market.’ You can’t expect a buyer to purchase a home that includes a boat or car financed through a home-equity loan. ‘That’s not part of your home’s value.’”

The News Messenger in Ohio. “Jim Brown, his wife and their 10-year-old twins were supposed to be on vacation this week. Instead, they will be at one of their homes. More specifically, the one in Texas — the one they want. The Browns have been in Texas for four years and since have been trying unsuccessfully to sell their old home in Zanesville.”

“After listing their home on the north end of Zanesville for sale in 2007, the Browns took out another mortgage to buy one in the Lone Star state. He took the Zanesville home off the market last year and began renting it after it became clear the price wasn’t going to be right. Brown, who never wanted to be a landlord, said he is about to lose his only tenant. His options are few. ‘We owe $109,000 on the house,” he said. ‘It was appraised just last year at $123,000, and I believe the last offer we got on it was $89,000.’”

“He’s begun talking to the bank about a short sale because their ability to continue to make payments on the Zanesville home might be in jeopardy. Four years of two monthly mortgage payments, property taxes, upkeep and management fees will do that. ‘My wife and I have even talked about if we get close on (an offer) to take money out of our retirement to cover the closing costs … and just to get rid of it,’ he said.”

“Cynthia Arnold, broker at Kareff & Arnold Realty in Mansfield, specializes in listing bank-owned homes. She said some homeowners never even have the option for a short sale because they never get an offer from a buyer. Many of those are headed for default and seizure. ‘I see one listed now that started out at ($135,000), dropped down to 126 and now it’s down to 76,’ Arnold said.”

“Home values directly affect consumer spending, the biggest driver of the American economy, Haurin said. Before the bubble burst, people — believing in the unstoppable skyward trajectory of the housing market — took out home equity loans based on the positive difference between perceived value increases and their actual mortgage.”

“‘Say that your house went up in value by $10,000,’ said Donald Haurin, chairman of the economics department at Ohio State University. ‘That’s, in a sense, just a paper gain, but what this research suggests is that people actually took out 15 percent of it, $1,500, and spent it. Now, when you’ve got equity going the opposite way, the theory is symmetric, it’s going to say that people are reducing their consumption 15 cents for every dollar of equity they lost,’ Haurin said. ‘Even if their income is starting to trend upwards, they’re still cutting back on their consumption.’”

The Appleton Post Crescent in Wisconsin. “A total of 4,885 closed sales were recorded across the state in May, the Wisconsin Realtors Association reported Monday. That’s a 22.6 percent drop from the 6,311 sales logged a year earlier as many first-time buyers scrambled to close deals to take advantage of an $8,000 federal tax credit, which is no longer available.’

“‘(May’s numbers) and next month, I can’t imagine there would be a strong enough June that would match the June we saw last year,’ said David Clark, a professor of economics at Marquette University. ‘That’s when everyone was scrambling to get their deals done so they could meet the tax credit deadline.’”

“Though there was a slight inventory drop, WRA estimates it would take 17.4 months to sell the current inventory. Clark said a normal figure is in the range of six months. ‘If someone is trying to time or figure out where the bottom of the market is, I don’t think anyone really knows for certain, but I think we have to be relatively close to it,’ Clark said.”

The La Crosse Tribune in Wisconsin. “Sales of existing homes in May dropped by 33 percent in La Crosse County and more than 45 percent in Trempealeau County from a year ago, state data showed Monday. Monroe County sales were down by almost 34 percent, according to the Wisconsin Realtors Association.”

“‘We need to get rid of last year’s statistics,’ said Steve Lillestrand, president of the La Crosse Area Realtors Association. ”Then it’s going to be a lot more realistic. I think we’ve got to be a little bit cautious about the statistics we see from the WRA because we have a pretty healthy market locally.’”

“While high-end sales - from $350,000 to $800,000 - declined, most other categories did relatively well, Lillestrand said. Interest rates remain low, he said, which makes it a good time to buy. And those who take a hit as a seller probably will recoup the loss as a buyer, he said. ‘Open houses are busy, there’s lots of traffic, there’s lots of people looking and, honestly, there’s never been a better time to buy,’ Lillestrand said.”

“A number of foreclosures still coming on the market skew the stats as well, Lillestrand said. ‘(Buyers) think they can steal them and it’s not necessarily the case.’”

The Indianapolis Star in Indiana. “Rising crime linked to vacant and abandoned properties is a scourge of Indianapolis neighborhoods. And not just in low-income areas. An Indianapolis Star analysis of crime and census statistics found that crime rates soar even in higher-income neighborhoods if they have higher-than-average vacancy rates.”

“The number of abandoned buildings in Indianapolis and many other cities skyrocketed during the home foreclosure crisis of the past few years. An estimated 35,000 properties — or about 9 percent of the total number of properties in the city — are vacant. Of those, 9,000 to 10,000 are abandoned. The five higher-income areas studied by The Star have two to five times more crime than other neighborhoods of similar wealth.”

“The findings reflected a trend generally in Marion County: In almost every city neighborhood, rich or poor, crime rates skyrocketed when the number of vacant homes increased. Landlord Larry Mitchell, who owns seven properties in Indianapolis, said most landlords try to watch over their property when it isn’t being used.Banks that foreclose, he said, are a bigger nuisance than small-time landlords.”

“‘They are very slow in getting a place secured and turning it over,’ he said. ‘It really hurts neighborhoods. It hurts my property values.’”

“Tehani Jordan and Michael Mansfield have seen close-up some of those hazards in their Near-Northside neighborhood. Their block is pockmarked with vacant lots and abandoned buildings. ‘We just cleared the garbage and weeds away from that building there,’ Mansfield said, pointing to an abandoned three-story brick apartment building one lot to the south. ‘The grass was up to my chest. There are possums and rats running in and out of the building.’”

“Jordan said the street, rather than the buildings, attracts crime. ‘I see the sex and the drugs every night,’ she said. ‘The cars pull up and park because they think no one is watching. You see them lighting up inside. In the mornings, you see condoms and panties on the street.’”

The Grand Rapids Press in Michigan. “Area real estate agents say a new city ordinance requiring registration, inspection and immediate fix-up of vacant homes along with a laundry list of new fees is a ‘money grab’ for City Hall. City Manager Soren Wolff said when presenting the ordinance that it is needed to keep neighborhoods from becoming blighted by deteriorating foreclosed houses.”

“The council approved the ordinance that forces vacant homeowners — even banks — to register the property with the city for a $100 fee, plus monthly charges. City Manager Soren Wolff said the changes under the new ‘Vacant and Abandoned Property Ordinance’ will only cover city costs for personnel time.”

“‘This is not going to fix the problem. Most homes that are in a deplorable condition are that way before people move out,’ said Holland RE/Max broker Corbin Kingsbury, whose company sells about a dozen foreclosed homes a month, noting the city already has ordinances for home maintenance they are not enforcing. ‘The city wants to wait for an investor or home buyer to come along and then stick them with additional costs. This looks like a money grab by the city.’”

“Wolff estimated there are currently about more than 100 vacant and abandoned houses in foreclosure in the city, with some so severely damaged they present a danger to children who might go in them to play. ‘Existing regulations take months and months to implement and then often nothing gets done. This will speed up the process and get deteriorated homes back in shape,’ Wolff said.”

From Consumer Affairs. “Sometimes the best way to get the pain over with is to rip off the bandage. When it comes to resolving the housing crisis, a Kansas State University professor says delaying foreclosures, as the banks are doing now, isn’t helpful. Foreclosures have dropped dramatically in recent months as banks continue negotiations with attorneys general over a settlement that looks at foreclosure practices. K-State finance professor Eric Higgins says some of the settlement proposals may backfire and do more harm than good.”

“While housing has officially entered a double-dip recession, in which sales and prices fell, rose, then fell again, Higgins says that’s a bit misleading. Higgins said it is not so much a double dip in the market, but rather the market never hit bottom. ‘The reason it appears to be a double dip is because foreclosures stopped due to the uproar over robo-signing practices,’ Higgins said. ‘So, what we were seeing for home prices at that time wasn’t really a true price. Once a true regulatory settlement was reached with mortgage servicers, the foreclosure process began again, the inventory of houses increased and prices dropped.’”

“‘In no way do our studies suggest that foreclosure is a good thing,’ said Higgins. ‘It is very unfortunate, but to delay the foreclosure process doesn’t help anybody. It doesn’t help the homeowner who is in debt and can’t get out of debt. It’s not helping the economy because we can’t find the bottom of the housing market. And it’s not helping neighborhoods because you have neglected houses.’”