The Housing Bubble

A report from the New Jersey Newsroom. “New Jerseyans’ are feeling distinctly worse off financially and their outlook on the housing market has soured, according to a quarterly consumer survey by Fairleigh Dickinson University’s College of Business. People who own their house are more likely than renters to say they are worse off financially (53 to 42 percent), and much less likely than renters to say they are better off (19 to 35 percent).”

“One reason for consumers’ grim outlook is housing prices. Half (49 percent) say they expect housing prices in their area to go down in the next 12 months. That is a huge turnaround from just six months ago when half (49 percent) said they expected housing prices to rise, and only 30 percent said they thought housing would decline.”

“‘If your house is a key component of your wealth and it goes down in value with no sign of improvement, you will have a bleak view of your financial future,’ Sorin Tuluca, a professor of finance at FDU’s Silberman College of Business, said.”

“Moreover, one in five homeowners (19 percent) say their mortgage is worth more than their house - an increase of 5 percent since April. ‘Many homeowners used the equity in their house as an ATM, and this is no longer possible,’ Tuluca said. ‘Renters on the other hand relied mainly on their income and thus their budget was more independent of real estate prices.’”

The Record in New Jersey. “A recent check of the Fannie Mae, Freddie Mac and FHA home-sale websites found a total of about 60 properties for sale in Bergen and Passaic counties, the large majority through Fannie Mae. The number of these homes on the market has shrunk since foreclosure activity came to a near-halt in New Jersey after mortgage servicers faced serious questions about their legal procedures. But foreclosures are expected to pick up again, since a state court recently cleared six large lenders to resume foreclosures.”

“‘That’s why the market is so unstable,” said Emilio Baldino of Century 21 Gemini in Wayne, who lists foreclosure properties. ‘No one really knows what’s in the foreclosure pipeline.’ Many potential buyers expect prices to fall further if a wave of new foreclosures hits the market, he said.”

The Press of Atlantic City in New Jersey. “A state bill could offer relief for developers who cannot finish proposed projects due to the economy. This would affect properties whose original application was submitted prior to Jan. 1, 2006, or the property must be owned by a lender who took ownership through foreclosure.”

“Michael Cerra, senior legislative analyst for the New Jersey League of Municipalities, said the original approvals presumably had been made on sound decisions by the planning and zoning boards. ‘Whether there may have been a bad business decision five or six years ago does not mean the taxpayers should pay for it over the long term,’ he said.”

“The Riverfront Condominium complex along the Maurice River in Millville was developed by Haffelfinger & Standeven Construction Co. and they got the senior restriction removed last year. Michele Wheaton, broker for the property, said the change has opened up the market, though they have yet to sell any properties as the developer continues to finalize its financing.”

“But Wheaton said interest is up even though the people contacting her are still predominantly senior citizens. ‘When you open the market up, it brings up the value a whole lot more,’ she said. ‘But it still has to fit with plans. The condos are two bedrooms, two baths. Not many families are going to want to live there.’”

Seacoast Online on Maine. “The owners of Atlantic House at York Beach have declared Chapter 11 bankruptcy for eight condominium hotel units that were scheduled to go to auction Sept. 28. The auction was cancelled after the bankruptcy filing, according to Tranzon Auction Property Senior Vice President Jill Daviero.”

“Blue Sky at York Beach restaurant and retail and office space on the first and second floors of the Atlantic House are not affected by the bankruptcy, according to property owner Lorri O’Brien. O’Brien said the reorganization is necessary because of the recession and a lack of willingness by banks and financial institutions to work with small businesses.”

“‘This is not a (case) of operating incorrectly or haphazardly,’ said O’Brien. ‘We’re looking for some investors to refinance it for us or step in and join forces. We have a very interested party that wants to partner with us, (but there’s) no financing from banks.’”

The Patriot Ledger in Massachusetts. “The listlessness of the state’s real estate market continued through the end of the summer, with the statewide median price for single-family homes declining by 3 to 4 percent in August from the same time a year ago. Jayne Magown, owner of Century 21 Abigail Adams in Norwell, Marshfield and Quincy, said banks’ appraisals end up below what a buyer has agreed to pay at least one-third of the time. She said that usually will scuttle a deal. ‘If we get something put together, and the appraiser comes in and it’s appraised less than what we agreed upon for a sale price, then the sale is in jeopardy,’ said Marcia Solberg, a Duxbury broker who is president of the Plymouth and South Shore Association of Realtors.”

“Magown said it could take at least 18 months before there is consistent price appreciation in the local market again. ‘This is the double dip (in the real estate market) they were talking about, for sure,’ Magown said. ‘We got off to a fairly healthy spring market, (but) it didn’t maintain a head of steam by any stretch of the imagination.’”

The Daily Item in Massachusetts. “Local anti-foreclosure protesters who joined a Boston demonstration Friday against Bank of America demanded the bank modify home loans to reflect the reduced value of a foreclosed homeowner’s property. Maria Gutierres said that if she cannot get Bank of America to modify the mortgage on her Tracey Avenue home she will not be able to pay heating bills and other expenses this winter.”

“Gutierres and her husband struggled to pay their mortgage in 2009 after she lost her job at a local food packaging company and her husband underwent surgery. They arranged a reduced mortgage with Bank of America mortgage representatives on a trial basis. Now they are waiting for Bank of America to permanently reduce their mortgage to an amount they can afford.”

“‘If they don’t offer it, I don’t know what will happen. The only one working is my husband,’ she said through translator Yonerky Santana.”

“United organizer Isaac Hodes called on Bank of America Friday to reduce principal balances on foreclosed mortgages to an amount reflecting the current value of the loan holder’s home. ‘If they came down from their offices they would see they aren’t offering modifications to people who need them,’ Hodes said.”

“Hodes said United has talked to Lynn residents facing foreclosure who said Bank of America offered them short-term mortgage modifications or reduced interest charged on their mortgages by only a small amount. ‘We’ve seen one case after another where the typical modification reduces the loan for a few years and then the payments go up again,’ Hodes said.”

“Euclid Avenue homeowner Santiago Garcia said he has tried for more than three years to negotiate a mortgage modification with several banks that passed his loan from one mortgage representative to another. He said he has filled out and returned documents requesting a modification but cannot get the paperwork approved. ‘I’m still fighting foreclosure through Lynn United,’ he said, explaining with Santana translating why he took part in Friday’s protest. ‘I don’t want other families to have to go through the same thing.’”

Crain’s New York. “A downtown Manhattan office building has sold for $49.8 million and its new owner has ambitious plans to convert it into luxury condos. The developer plans to convert the 13-story property into 90 apartments and six penthouses as well as 10,000 square feet of commercial/retail space.”

“Apartments will range from studios to four-bedrooms, according to Doron Zwickel, executive VP of CORE, the brokerage retained as the sales and marketing agent for the project. Price, depending on the unit, will range from $1,250 per square foot to $2,000 per square foot. ‘The prices will be in line with other residential developments in the neighborhood,’ said Mr. Zwickel.”

The Providence Journal in Rhode Island. “Anyone who has seen a friend kick an addiction knows the extreme discomfort and force-of-will required. America has long suffered repeated bouts of binging on real estate. The booms inevitably trigger busts, one of which we’re now in deep.”

“But there is some bright side here. As they say, with pain comes gain. The collapse in house prices could help the environment, stabilize family finances and strengthen our economic base over the long term.”

“What we really have is a return to certain realities obscured by the housing bubble. In recent years, up to 2007, soaring house prices created a ‘wealth effect.’ This was an illusion of newfound prosperity, which prompted homeowners to borrow heavily off their rising equity and spend the money, much of it at the mall. They didn’t save much for retirement, figuring that they could live off the proceeds from selling their homes.”

“When the music stopped, the wealth effect went into reverse. Families pulled back on spending. They began to ‘de-leverage’ their finances, that is, start paying off their debt. Construction workers, landscapers, salespeople and others living off the bubble lost their jobs. The resulting unemployment is painful, but won’t the American economy become stronger when families start carefully investing for their future, rather than relying on the magic-mushroom ‘high’ of ever-rising home prices?”

‘Isn’t it better for the environment that prospective homebuyers now value smaller houses that use less energy, take up less space and are often closer to work, schools and shopping? And isn’t it good for American towns and cities where these smaller and older houses are?”

“The so-called lost decade for homeowners has become a ‘found decade’ for homebuyers. Young people can easily find far more affordable housing, although getting a mortgage has become tougher. They don’t have to start off their working lives drowning in debt.”

“The boom-bust cycle in real estate has repeated itself so often in our history that it would be foolish to declare the housing addiction ‘cured.’ But since this latest excess had to come to an ugly end, let’s at least get something good out of it. “