The Housing Bubble

The Rapid City Journal reports from South Dakota. “According to the Black Hills Multiple Listing Service statistics, from January 2010 to May 2010, the average selling price for residential homes — which include single family, new construction, manufactured homes, townhouse/condos and recreational properties — was just over $170,000. The numbers for January 2011 to May 2011 show an increase of the average sold price to about $172,800. Linda Rausch, president of the Black Hills Association of Realtors said government regulations play a critical role in whether the trend will continue.”

“‘The housing crisis all began because practically anyone could get a loan for any amount they wanted, even if they had bad or no credit,’ Rausch said. ‘Regulations are good, but if the government makes it so buyers have to put 20 percent down, that could hurt us, because for many buyers, that just isn’t possible.’”

“Rausch said for people who are in the market to buy a home, there has never been a better time to buy. ‘If you can qualify to get a home mortgage it’s a great time to buy, and in five or 10 years, it’ll probably pay off,’ said Rausch. ‘The good news is interest is low, so I don’t think you could buy a house cheaper than you can right now.’”

“Despite the good news of many houses selling, Rausch said the Rapid City area is seeing more foreclosures than it has in the past. ‘Foreclosures are up about 10 percent than in recent history, but that goes back to when anyone could buy a home even if they couldn’t pay for it,’ Rausch said.”

The Zanesville Times Recorder in Ohio. “The city of Zanesville has 1,521 vacant housing units — houses, apartments, condos, etc. — according to 2010 census data. That’s 12.3 percent of all housing units in the city, a 31.4 percent increase since 2000, according to the data. Muskingum County isn’t faring much better. Of the 38,074 housing units in the county, 3,803, about 10 percent, are vacant — a 32.8 percent increase from 2000.”

“It’s something that’s happening all over the country, said Mayor Butch Zwelling. Foreclosures are up and house prices are falling, he said. For many sellers, their home now is worth less than is owed on the mortgage, and they’d rather leave the house empty than take that loss, he said.”

“Vandalism is one of the first thoughts that pops into Sherry Crouch’s head when she thinks of the empty house next door. The worst part, she said, is the situation probably is not going to improve. A bank owns the house, she said, and its policy is ‘to heck with the neighborhood.’ ‘If I were ever to sell and I had this right next to me, that’s not going to help me,’ she said.”

The Journal Sentinel in Wisconsin. “Marshall & Ilsley Corp., Wisconsin’s largest bank, was officially absorbed into the Canadian parent of Harris Bank on Tuesday after finding itself unable to recover from staggering losses in Sun Belt real estate markets it had pursued aggressively in recent years. M&I had labored under the weight of real estate loans that went bad, particularly in Arizona, where home values have plummeted in the last four years.”

“John Rickmeier, who analyzes the strength of banks as president of IDC Financial Publishing Inc, called the Harris Bank franchise ‘a very strong banking group.’ ‘The Canadian firms simply didn’t get involved in the difficulties in this country, in terms of delinquency, and they certainly didn’t in Canada. They didn’t blow up their housing system like we did here and create a bubble,’ he said.”

The Chicago Tribune in Illinois. “Former Chicago Bears wide receiver Marty Booker has closed the books on his local real estate portfolio, taking a major loss on his 13-room house in Grayslake, which he recently sold for $390,000. Booker paid $523,700 in July 2008 for the four-bedroom, 4,100-square-foot house. He listed it in late 2009 for $515,000 and reduced its asking price in early 2010 to $499,000 and then to $479,000. In June 2010, Booker cut the price to $429,000.”

“The Grayslake house was Booker’s final Chicago-area property. Last year, he sold his three-bedroom, 2,000-square-foot loft condominium unit in the West Loop’s Randolph Place building for $465,000. He had bought it in 2004 for $526,500.”

From Chicago Mag in Illinois. “When a 2,900-square-foot condo on the 83rd floor at the John Hancock Center sold June 22, it became Chicago’s loftiest foreclosure—and very likely, the world’s. Meg Nagel, the Southport Sotheby’s International agent who represented the home, was also the agent who sold the second loftiest foreclosure here, an 82nd-floor Hancock unit that she sold last September for $651,000. ‘The buyers of both of those two [Hancock units] got really great deals,’ she says.”

The Chicago Journal in Illinois. “Every American homeowner knows housing values have fallen faster and farther over the past few years than price drops seen in the Great Depression. However, housing experts say the worst real estate recession since the 1930s likely is over, and some positive numbers are starting to trickle in to back up that long-awaited turn-around.”

“‘The trend in rising home sales and median prices is a positive direction for the housing market as a whole as the strong buyer’s market and high affordability conditions continue,’ said Peoria Realtor Sheryl Grider Whitehurst, president of the IAR. ‘Brokers across the state are reporting the biggest road block for getting a home loan today is lending requirements that are too strict for even qualified buyers,’ Grider said. ‘A return to more robust yet responsible lending will result in more closed transactions and a stronger economy.’”

“For Chicago condominiums specifically, the median price reached $299,000 in May 2011, up 10.3 percent year-over-year from $271,150 in May 2010. ‘Chicago’s condo sales in May outpaced single-family homes by nearly 30 percent, a strong indicator that the condo market is re-emerging as a viable and affordable housing choice,’ said Mabel Guzman, president of the Chicago Association of Realtors.”

The Star Tribune in Minnesota. “With his building under foreclosure, Donald Mordal decided to take some items that he says belonged to him. Now, he’s facing criminal prosecution, only the second person charged in Anoka County in the past 25 years under a 1963 state law. The law makes it a felony to remove or damage property subject to a mortgage with intent to hurt the property’s value. It is so rarely used that officials in the Hennepin and Ramsey county attorney’s offices couldn’t recall prosecuting anybody under it.”

“As the economy declined in 2009, Mordal’s business suffered and tenants dried up, including three mortgage companies, he said. ‘I don’t think I did anything illegal,’ Mordal said. ‘The bank has the money and time to prosecute me, but not the money and time to help me get a loan.’”

From Minnesota Public Radio. “In the five years since Kari Musil lost her own home, she and her 18-year-old daughter have moved three times. She bought her house in east St. Paul in 2004. But after her daughter’s health problems required seven surgeries in one year, she ran up thousands of dollars in hospital bills and fell behind on her mortgage payments.”

“She applied for a loan modification to lower her approximately $1,700-a-month Wells Fargo home mortgage. But the application process was too lengthy for her to save her house from foreclosure. In 2006, Musil, a single mom, sold it in a short sale.”

“Many others who have suffered economic misfortunes during the housing crisis weren’t so lucky. Since 2007, more than 100,000 Minnesota homes have been lost to foreclosure. It’s a significant milestone. While the rate of foreclosure has slowed since its peak three years ago, it’s still at a historic high.”

“This month, Musil and her daughter are moving again - this time to a two-bedroom house on the west side of St. Paul. It’s a rental house, but that doesn’t bother her. ‘You see commercials on TV about having this perfect credit score and having a savings account and all of that stuff,’ she said. ‘And I kind of laugh when I see that because I just know that I’ll never be doing that, and it doesn’t really bother me anymore.’”

“Musil doubts she’ll be able to buy a home again any time soon. Her phone continues to ring with calls from bill collectors. She said losing her home has changed her view of homeownership. ‘You know, I’ve kind of lost that whole thing about having a house. Owning a house just didn’t seem as great as everyone said it would be.’”

The Des Moines Register in Iowa. “The president of the Federal Reserve Bank of Kansas City delivered a scathing rebuke of U.S. monetary policy, Congress, and the American consumer in a sweeping speech on the economy in Des Moines on Thursday. Thomas Hoenig, a native of Fort Madison who earned his Ph.D. in economics at Iowa State University, said the economy has been artificially inflated by low interest rates and will face further crises unless policymakers and consumers shift their focus to saving and investing instead of debt-driven growth.”

“‘We have this leveraged economy that we have used to build our growth over the last 10 to 15 years that we cannot carry forward,’ he said.”

“Before the government began providing a safety net for financial institutions, banks kept more capital on their books. In the boom before the financial crisis, banks and government-sponsored entities like Fannie Mae and Freddie Mac let their capital ratios plummet in order to lend more - and make more - money. Low interest rates allowed this, and it was a ‘house of cards,’ Hoenig said.”

“‘You create certain fragilities in the economy that when you do have to reverse your position, in terms of interest rates, whenever that is, it becomes an increasing risk of shock to the economy, whether it’s your concerns about the stock market tanking or values of land being affected,’ he said. ‘When you artificially hold down interest rates or you artificially bring short-term tools to solve long-term problems, you get worse long-term problems.’”

“He called the Dodd-Frank Act, the financial reform legislation signed into law by President Barack Obama a year ago, ‘2,300 pages of complexity’ that ends up favoring large banks over small ones, by imposing regulations that small banks may not have the wherewithal and personnel to comply with.”

“He said the idea that some financial companies are too big to fail is an ‘abomination’ that in effect subsidizes large banks and helps them grow while other sectors of the economy - for instance, manufacturing - suffer. Manufacturing in China and Singapore has fared better since the financial crisis, and Hoenig said that’s in part a result of the U.S. government’s commitment to rescuing the financial industry from its own excesses.”

“‘It’s no wonder that we have 9 percent unemployment two years into an economic recovery, because you’ve hollowed out the base that would have otherwise recovered,’ he said.”

“Hoenig believes Fannie Mae and Freddie Mac, the beleaguered government-sponsored mortgage guarantors, should be phased out. ‘It was designed to enhance our housing market and it destroyed our housing market,’ he said. ‘When you have an institution that is that destructive, you should kill it.’”

“He also had strong words for consumers, who still carry debt that’s 115 percent of their disposable personal income. Americans must begin to consume less and start saving and investing more, he said. ‘We have been, as consumers, driving our economy and the world economy,’ he said. ‘But it hasn’t really been driven by increasing consumer personal income or real wealth growth, but by an artificial leveraging-up of our consumers.’”