The Housing Bubble

The Northern Colorado Business Report. “It’s no secret that the housing market is showing signs of life, so much so that local real estate companies have resumed hiring brokers and some developers are working on new single-family construction. Lauren Hansen, CEO of Information Real Estate Services points to supply and demand as the reason for the changes. ‘Inventory is down and interest rates have reached record lows,’ Hansen said. Because there are fewer homes on the market, buyers are more motivated to make an offer on a home and hopefully stake a claim on it.”

“In other words, there’s a sense of competition in the market, and the inventory data explain why. The number of active listings recorded by IRES has been significantly lower than the same month of the previous year in every month so far in 2012.”

From KKCO in Colorado. “With the 25 billion mortgage settlement, borrowers who lost homes to foreclosure will be eligible for payouts from a 1.5 billion dollar fund. That could mean 750,000 borrowers getting about $2,000 each. ‘The government isn’t going to go back and say oh well, the bank made a mistake, here’s $2,000 for your home. Well that’s worth, what, a month’s worth of rent?’ says Penni.”

“Penni’s home was foreclosed last year. ‘I could be evicted any day. I’m not willing to take their cash for keys; I’m not willing to abandon my home,’ says Penni. But she’s running out of time and running out of options. ‘The banks aren’t willing to negotiate with me. The thing that I really want people to know is that’s they’re not going to get help; they’re not going to get help from their bank; they’re not going to get help from their government,’ she says.”

The Arizona Republic. “Arizona State University’s latest real-estate report shows the median home price in the Phoenix area climbed again in April to $140,000 — 25 percent higher than the year before. Metro Phoenix’s supply of homes is so low that bidding wars have become the norm. Mike Orr, real-estate analyst with ASU started a survey among real-estate agents to track how competitive homebuying is in the region. So far, the most competitive purchase he has documented was a home sale with 76 bids in Chandler. Of the offers, at least 65 came from regular buyers.”

“Potential buyers seeing the rapid run-up in home prices during the past few months are now rushing to try to buy, Orr said. Rob Shaw, a Phoenix-area real-estate agent, said that there are regular homeowners who can now sell for a profit but that appraisals aren’t keeping up with rising values. That means traditional buyers, who must get an appraisal to secure a mortgage, may not be able to close the deal. ‘We are encouraging sellers to consider marketing their homes to cash-only buyers to avoid having to get an appraisal,’ he said.”

“‘Phoenix is a volatile housing market,’ Orr said. ‘I always tell people we are the dot-com of real estate. When the market is doing well, people jump in, and when it goes bad, panic sets in fast.’”

The Phoenix Business Journal in Arizona. “While some local real estate experts believe the Phoenix market already is in the midst of a recovery, many national experts don’t agree. ‘The shadow inventory and the amount of homes underwater, (the negative equity) there are 11 million homes but it is concentrated really in three states: Arizona, 61 percent, Florida, 45 percent,’ said Mark Kiesel, a managing director at Pacific Investment Management Co., without citing the third state.”

“Gary Shilling, president of a consultancy in Springfield, New Jersey, doesn’t think prices are going up. He believes U.S. housing prices still are going to decline 20 percent this year due to excess inventories. ‘We estimate that there are 2 million inventories, both visible and shadow inventories over and above normal working levels,’ he said. ‘That is a lot. Back in normal times, we built about a million and a half houses a year, so two and a half million is a tremendous overhang.’”

The Salt Lake Tribune in Utah. “The speed at which the Federal Deposit Insurance Corp. disposed of the foreclosed properties of a failed Arkansas bank played a part in the later demise of at least two Utah banks, the head of the Utah Bankers Association alleges. But over time, the agency has learned to get rid of foreclosed properties without undue disruption to local markets, said some bankers, who would not speak on the record. The FDIC can sell properties, work with borrowers to change the terms of delinquent loans and avoid foreclosure or bundle delinquent loans from a number of banks and sell them to investors.”

“‘It is getting very sophisticated about this,’ one banker said. ‘They are not a dump-and-run group.’”

“Because Freddie and Fannie are still big players in home lending nationwide, the agencies can sometimes be involved at both ends of a home sale, simultaneously as the property owner and a key part of the financing. ‘Let’s just say, it can be pretty inbred,’ said Jeremy Peterson, an Ogden real estate agent and Republican state lawmaker. ‘You don’t have traditional market forces at play. You have political forces.’”

“Foreclosure data analyzed by The Tribune also show thousands of Utah REO properties still entangled in hybrid mortgage-backed securities, the so-called toxic assets created by Wall Street out of bundled subprime mortgages sold by original lenders. Documents list these properties as being owned, essentially, through financial instruments packaged by institutional lenders. Typically, these properties are held by smaller groups of private investors who are usually intent on recovering the full, pre-crash value of their investments and tend to be less flexible in negotiating on sales prices, several Utah brokers said.”

“‘You’re going to see those assets setting on the market for long, long periods of time,’ said Steve Cuillard, broker who has sold REO properties for nearly 13 years..”

“‘We were crying with buyers at the closing table for realizing the American Dream and now four years later, we’re crying with them at the kitchen table when they’re losing it all,’ says Salt Lake City-based real estate agent Amanda Mendenhall.”

From KLAS-TV in Nevada. “More than one of every four homeowners with a mortgage in the Las Vegas metro area owes more than double what their home is worth, Zillow reported. The report also found that Nevada led the nation with 66.9 percent of its mortgage holders underwater in the first three months of this year. That was well ahead of second place Arizona at 52.3 percent. Among 30 large metro areas surveyed, Las Vegas also came out on top with 71 percent of its residential mortgages underwater. It was also reported that 14.3 percent of Las Vegas homeowners were at least 90 days delinquent on their mortgage payments, fifth highest nationally.”

“Zillow reported that 15.7 million Americans collectively were $1.2 trillion underwater in the first quarter. ‘While it was disappointing to see negative equity numbers remain so high, it is important to note that negative equity remains only a paper loss for the vast majority of underwater homeowners,’ Zillow chief economist Stan Humphries said.”

From Vegas Inc in Nevada. “Las Vegas homebuilders can’t build houses fast enough these days to keep up with buyers’ demand. A shrinking inventory of existing homes in the valley is forcing buyers who might typically prefer older homes to buy new. Inventory began to shrink rapidly at the end of last year when a new state law took effect requiring lenders to prove they have the legal right to foreclose on properties. Last month, there were only 258 bank repossessions in the valley, the fewest on record in two decades, according to SalesTraq.”

“For the first time in five years, homebuilders are raising prices as developments sell out. ‘They can only raise their prices so much. The problem is getting appraisals to match those prices,’ said Kolleen Kelley, president of the Greater Las Vegas Association of Realtors.”

“Naysayers may grumble that another bust is imminent. With a glut of inventory lurking in the shadows, they worry the market will be flooded with new and existing homes once banks start releasing foreclosures again. Kelley doubts it. Developers are, for the most part, building on demand, she said, and have learned lessons about speculation. ‘They have a good sense of the demand going a few months out,’ she said.”

From Metronews on Nevada. “Every weekday morning at the stroke of 10, the faithful gather to gamble. But this isn’t a casino. It’s the parking lot of the Nevada Legal News. Here, every Monday to Friday, 50 to 60 realtors congregate to bid on America’s broken dreams, homes wrenched from people’s grasp by banks and put up for auction. Today more than 300 are up for grabs, just as there are every day. It’s a scene being repeated across America.”

“The prospect of sunny properties at deep-discount prices has been a magnet for foreigners: Canadians, Mexicans and newest of the nouveau riche, the Chinese, lead the pack. ‘Vegas is on sale right now and Canadians know it,’ says Tom Fehrman, a local broker. ‘There are millions of Canadian dollars circulating in this market. Here in Vegas there’s more Chinese money coming in now.’”

“Local realtor David Fahrny remembers the glory days of the rising Vegas real estate market fondly, before it all came crashing down. In 2000, the city was on a path of robust growth. But in 2003, the age of “the 80-20” dawned, a scheme that allowed buyers to sign on for 80 per cent mortgages and get the other 20 wherever they could — banks didn’t care where. It was effectively a 100 per cent mortgage with zero down.”

“By 2004, people in Vegas were standing in line for days to put their name on a list to make an offer on a new house. Bidding wars broke out, people were offering tens of thousands of dollars over list prices, and agents were bringing ‘flowers and candy’ trying to get sellers to take their offers. ‘I remember one property we were bidding on had 32 offers on it. How do you compete with that?’ said Fahrny.”

“Fahrny started picking up properties, too — for his retirement. He couldn’t resist. ‘When it all started, I said, ‘Look we’ve got to do this. If we don’t, we may be sorry.’ I said, ‘Sure it’s a crap shoot. It’s a roll of the dice. But if it all collapses, it won’t matter — we’ll all be in the same boat.’”

“Fahrny snapped up 10 houses, investing more than $2 million. Then the U.S. housing bubble burst, stocks and securities that were tied to the U.S. real estate market plummeted, and the global financial crisis exploded around the world. The banks called Fahrny’s loans, just as they did for millions of others. Fahrny was forced to sell all but two of his properties, suffering major losses. Today he clings to his own home and a single rental. He’s not making payments on either.”

“‘And so here we are today. I guess we’re all in the same boat now, aren’t we?’ he said.”