The Housing Bubble

The Sussex Pilot reports from Delaware. “A couple of weeks ago, Delaware Gov. Jack Markell became the latest in a string of state leaders across the country to declare the month of June as ‘Home Ownership Month,’ illustrating the importance of real estate to grow and sustain the nation’s fragile economic recovery. Despite its struggles in recent years, real estate continues to be one of the best long-term investments ‘from sea to shining sea.’ Disregarding the appreciation that inevitably occurs over the years, other benefits to owning and maintaining your own home include tax advantages, long-term financial security and the freedom that comes with owning your own little piece of the American Dream.”

“‘While it may be hard for people who have bought their homes in the last five years to see it right now, owning your own home is one of the best long-term decisions anyone can possibly make,’ says Sandy Greene, 2011 president of the Sussex County Association of Realtors. ‘We’ve definitely hit a pretty big speed bump since 2006, but things will eventually work themselves out. And if you haven’t yet bought a house, right now is perhaps the greatest time in history to do so.’”

“‘We have had to weather the storm, to be sure, but I think we have effectively done so and are optimistic in the months and years ahead,’ says Greene. ‘As long as we have the Atlantic Ocean close by and a low tax rate, people are still going to want to buy homes here.’”

“‘There’s no question that owning your own home, whether new or existing, is a sound financial decision over the long term,’ says Greene. ‘All of us at SCAOR applaud Gov. Markell and his colleagues around the country for recognizing this essential part of the American economy. Owning your own home is, and will continue to be, the American Dream, something that people all around the world aspire to.’”

The Capital in Maryland. “Dawn Kyle sits at her kitchen table with a pile of papers splayed out in front of her, tears in her eyes. She’s not sure how she got to this point, but the papers - letters, financial documents and notes - provide a glimpse into her dire situation. In just weeks, she, her 70-year-old mother and her two teenage children must be out of the Glen Burnie home they have shared for 14 years.”

“‘We don’t have a place to go,’ she said. ‘We’ve done everything they told us to. I don’t know what else we could have done.’”

“Kyle has now entered into an agreement through Freddie Mac’s ‘Cash for Keys’ program. Her family must be out of their home by July 11. Freddie Mac will pay Kyle $2,500. She hopes to stay in the county so that her son can graduate from nearby Severna Park High School. ‘We’ve been on the edge for such a long time … and then all of a sudden, to have the rug pulled out from under us,’ she said. ‘I believed them. They’re the bank, for God sakes.’”

The Fairfax Connection in Virginia. “Home sales in May across Northern Virginia may be down over 2010, but sales prices are rebounding. Local real estate brokers and mortgage experts say they believe 2011 will be a strong year. The median sold price was $375,000, up 7.14 percent and the average sold price was $432,829 up 5.4 per cent over May 2010.”

“Susan Taylor, a broker who sells high end houses in the Old Town section of Alexandria, said her sales this year were not a factor of the federal program to guarantee ‘jumbo mortgages,’ but were to ‘conservative people who saved their money.’ Taylor said the nature of financing has also changed. She said for the first time there are significant military sales in Old Town. The G.I. Bill provides a Veteran’s Administration loan with no down payment and easier terms and serving military families assigned to the Pentagon is other area military bases are entitled to get them.”

“Taylor said the buyers are far more focused than in earlier years. ‘Buyers are very savvy now,’ Taylor said, ‘there is no impulse buying.’”

The Star News in North Carolina. “A local economist said Wilmington’s former dependence on construction and development is making a difficult employment rebound that much harder. The problem is ’structural,’ said William Hall, an economist at the University of North Carolina Wilmington.”

“And it’s the hardest of three forms of joblessness to get over. Construction, development, real estate and related industries once accounted for one in five local jobs. Following the crash in the housing market, that figure is now one in 11, Hall said. Unless construction comes back strong, those jobs are not going to re-materialize, he added.”

“Those workers are ‘laid off and their skills are no longer needed,’ Hall said. ‘For them to find gainful employment they have to find new skills.’”

The Charlotte Observer in North Carolina. “In the latest fallout from the housing bubble, federal prosecutors in Charlotte on Tuesday filed charges against three more defendants for mortgage fraud-related offenses. The 4-year-old probe has centered on seven high-priced south Charlotte and Union County neighborhoods. It involved about 80 homes and $100 million in loans.”

“Generally, the groups agreed to buy a new house at its true price, then arranged for a ’straw buyer’ - a pretender - to take a loan to buy the house for much more than the true price. That required falsifying paperwork to convince a lender that the house was worth far more than it actually was - and that the straw buyer planned to live in the house and could afford to make the payments.”

“After the sale was completed, the mortgage fraud groups split the difference between the true price of the house and the inflated loan amount, court documents allege. The charges on Tuesday came as the Financial Crimes Enforcement Network said depository institutions filed 25,495 suspicious activity reports for mortgage loan fraud in the first quarter of this year, up 31 percent from a year ago.”

“Based on per capita rankings, North Carolina was the No. 3 state for the reports, its highest ever ranking, behind California and Nevada.”

The Mainstream Business Journal. “A bipartisan group of U.S. senators and representatives last week joined with NAHB and other business and consumer groups in calling on federal regulators to revise a pending proposal that would require a minimum 20% downpayment for ‘qualified residential mortgages.’”

“They argued that such a plan goes against the intent of Congress, would keep homeownership out of reach of most first-time home buyers and many middle-class households, and would deal a devastating body blow to the already fragile housing market. Under the Dodd-Frank financial reform law passed last year, securitizers are required to have ’skin in the game’ by retaining 5% of the credit risk of each loan backing a security.”

“Last month, Isakson, Landrieu and Hagan led a bipartisan group of 39 senators in writing a letter to federal regulators urging them to modify the proposed risk retention rule because it imposes unnecessarily tight downpayment constraints that would restrict credit to middle-class families working to own a home.”

“‘Well underwritten loans, regardless of downpayment, were not the cause of the mortgage crisis. The proposed regulation also establishes overly narrow debt-to-income guidelines that will preclude capable, creditworthy home buyers from access to affordable housing finance,’ it said.”

“Reps. Campbell and Sherman spearheaded a similar effort in the House, garnering a strong majority of lawmakers to join together to write a subsequent letter opposing the rule. ‘This economy cannot recover if housing does not recover. It’s one-sixth of the economy,’ added Campbell. ‘If this regulation as proposed goes into effect, we not only won’t have a strong housing market, we’ll have a weaker one. We cannot set up a system that is so onerous and so difficult that the average American won’t be able to get financing to buy a house, which will further drop the price of housing and will further sink this economy,’ he said.”

“Giving the issue a local perspective, Sen. Kay Hagan (D-N.C.) said that in Raleigh, N.C., where the median house price is $217,000, home buyers would need more than $43,000 for a downpayment under the proposed rule. ‘That’s almost equal to the median annual income in my state,’ she said. ‘Many families in North Carolina and across the country cannot afford such an onerous downpayment.’”

The Times Leader in Pennsylvania. “For two decades, Rick Arnold never looked for work beyond a 45-mile comfort circle around his Mountain Top home building company’s headquarters. But a sluggish economy combined with lending institutions tightening of loans has put a strain on the real estate market and caused people like Arnold to think outside the box.”

“Arnold went from building four or five custom homes a year as recently as 2007 to having one home constructed last year and one under contract this year. And he’s been going throughout Northeastern and Central Pennsylvania for work, as far away as Williamsport, Danville and Gibson, and in some cases doing jobs on his own, without a work crew.”

“‘You have to be willing to roll up your sleeves and travel,’ Arnold said. ‘A lot of us had our hands full with all the work we could handle. But when the slack ran out of the rope, we all started looking around.’”

“Joe Peterson, owner of Hanover Homes North in Wilkes-Barre, serves on the board of the National Association of Home Builders, said fewer projects are planned for this year and he sees no light at the end of the tunnel. He said he doesn’t even want to be greedy and see the boom that was experienced between 2004 and 2007. He’d be satisfied getting back to ‘the normal times,’ with the home building numbers that were seen in the late 1990s and the first half of the last decade.”

“That level where they turned down projects that weren’t profitable enough, or had so many phone calls it took you a week to return them, or when a builder said ‘no thank you’ to a smaller project or one that was an hour’s drive away. ‘I don’t know if it will ever come back to that point where I have so many (projects) that I can pick and choose,’ Arnold said.”

“Builders cited two chief reasons for the diminishing confidence in their business: Rising costs of building materials, such as shingles, copper and vinyl siding and competition from foreclosures and properties at risk of foreclosure, which sell at an average 20 percent discount. Arnold said ‘materials haven’t gone backwards in price.’ He noted fuel costs, insurance and electricity also have risen.”

“‘It’s become a product that’s become almost unaffordable,’ Arnold said.”