The Housing Bubble

A report from the Los Angeles Times, “PennyMac, AmeriHome Mortgage and Stearns Lending have several things in common. All are among the nation’s largest mortgage lenders — and none of them is a bank. They’re part of a growing class of alternative lenders that now extend more than 4 in 10 home loans. All are headquartered in Southern California, the epicenter of the last decade’s subprime lending industry. And all are run by former executives of Countrywide Financial. This time, the executives say, will be different. Still, some observers worry as housing markets heat up across the country and in Southern California, where prices are up by a third since 2012. A small down payment was attractive for Abraham and Crystal Cardona. They both have high credit scores, approaching 800, but in September they chose an FHA loan from a nonbank lender when they bought a $500,000 home in La Mirada.”

“The minimal down payment of $17,000 left them enough savings to buy a few appliances and put a fence around their backyard pool. ‘We were thinking about what our monthly payment was going to be, not where the loan was coming from,’ said Abraham Cardona, 32.”

“There’s market share to be gained from originating loans outside those standards. Irvine’s Impac Mortgage, a publicly traded nonbank lender, nearly went bust during the housing crisis because it specialized in Alt-A mortgages, loans extended without proof of income or assets. Now it’s back in the lending business, largely originating standard, government-backed loans. But about a year ago it started offering ‘AltQM’ loans, as in: alternative to qualified mortgages. These higher-rate mortgages might feature interest-only payment periods, adjustable rates or exceed debt guidelines.”

The Los Angeles Daily News on California. “The San Fernando Valley’s housing market eased into its slow season in October with both sales and prices making modest gains, according to two reports. Prices are softening too. While still increasing from a year-ago level, they have fallen month-over-month for the past three months, noted economist William W. Roberts, the San Fernando Valley Economic Research Center at Cal State Northridge director.”

“During October the median price rose 4 percent from a year earlier to $560,000 but lost $16,000 from September. ‘I don’t expect prices to be going up 6 to 8 percent year-over-year (now). We’re back to a respectable range, but these are the smallest year-over-year (percentage) increases we’ve seen in a long time,’ Roberts said. The median house price rose 8 percent from October 2014 to $562,000 and gained $7,000 from September. The median house price is now 14 percent under the record of $655,000, which hit in June 2007 before the Great Recession throttled the market. And it is now 66 percent above the post-recession low of $339,000 in December 2011.”

The Associated Press on DC. “In the rapidly gentrifying nation’s capital, real estate investors aren’t the only ones flipping houses for profit. The city’s public housing authority is getting in on the action — moving aging tenants out of homes where they’ve lived for decades, renovating them and selling them to wealthy buyers. The renovations, at a cost of more than $300,000 per home, are outfitting the houses with luxury amenities, and some of the houses have sold for nearly $900,000. Others, however, have sat vacant for a year or longer after tenants were forced out.”

“One home, on a well-kept block in Capitol Hill, has been vacant since late 2013, when the longtime tenants — Lula Brooks, 81, and her husband, Sonny, 82 — were abruptly moved out. The house wasn’t renovated. A year later, it was put on the market for $400,000 — unusually low for the neighborhood. It eventually sold for that price after higher offers fell through, but the housing authority asked its title company not to sign over the deed. The sale is tied up in litigation.”

“The rest of the houses the authority has sold in recent years have gone for market value. Others sit empty because the authority can’t afford to renovate them. A year ago, Levant Graham, 84, was moved out of the five-bedroom home in Shaw where she’d lived since the early 1970s and raised seven children. The housing authority plans to flip the house, but so far it hasn’t been renovated or listed for sale. ‘I thought the house was already sold. I thought it was on the market. So, I don’t know what the big rush was to get me out of the house,’ Graham said.”

The Gainesville Sun in Florida. “For UF students with money to spend on housing, it’s all about location. Well, ok, it’s also about high-end appliaces, wi-fi, a first-floor coffee shop, and maybe a lazy river. More than 2,500 units of high-end apartments are being built for college students over the next two years in densely packed, modern high rises within a few blocks of the University of Florida’s historic campus. The newer luxury apartments going up near the campus are fetching high rents: $1,000 a month or more.”

“Nathan Collier, who has been involved in student housing in Gainesville for 40 years, sees a glut of student housing coming on the market at a time when enrollment is frozen. He sees the writing on the wall and is already diversifying into market rate properties for professionals and other renters. ‘I happen to think student housing in Gainesville is being overbuilt,’ he said. ‘Across the entire investment horizon, there is a scarcity of investment opportunities and lot of money looking for a home.’”

“‘Everybody is raising rents,’ said Keith Crutcher, who has been in the apartment management business for more than 20 years. ‘The market firms up, occupancy is in the high 90s, and here come all the developers building units. When the units come on line occupancy drops.’”

The Atlanta Journal Constitution in Georgia. “Metro Atlanta home sales are much stronger than just a few years ago, new homes are rising again and average prices are edging toward the peaks of 2007, just before the bubble burst. Average Atlanta prices have racked up a 53 percent gain since the recovery gained traction in 2012. That leaves them about 8 percent below their highs. Even now, about 20 percent the mortgages in metro Atlanta are underwater, according to Zillow.”

“It’s actually worse than that: Twice as many – 40.4 percent of homeowners with a mortgage are ‘effectively underwater,’ Zillow says, with so little equity that selling their homes would not leave them enough money to pay for the transaction and finding another home. Lower-priced homes are the most likely to be underwater, Zillow says, with 43 percent of homes in the bottom third of prices falling into the category.”

“Moreover, in some neighborhoods, the crisis has never passed, said Dan Immergluck, professor in Georgia Tech’s School of City and Regional Planning and author of the recently published book ‘Preventing The next Mortgage Crisis.’ ‘The effect of the crisis has been uneven,’ he said. ‘There are neighborhoods, especially on the south side of the city, that still have forty and fifty percent vacancy rates. For example, the Pittsburgh area.’”

“In 23 ZIP codes around metro Atlanta, more than 40 percent of mortgages are underwater. In five of them, more than half the mortgages are underwater. The worst damage is in Riverdale 30296, where nearly six of every 10 homeowners with mortgages have negative equity.”

WIVB in New York. “‘Zombie Homes,’ and State Assemblyman Michael Kearns’ ‘Shame the Banks’ campaign were front and center at Buffalo City Hall, but it was more about what has become a regional problem. But most of the testimony came from the suburbs, like Clarence where we have found a million-dollar zombie home, and towns like West Seneca, where Sharon Kimaid lived next door to a vacant, decaying house for years, until it was demolished at taxpayers’ expense. ‘It was a blight to our neighborhood, and it is just plain sad that this home, in a very nice neighborhood could not be salvaged. I blame the bank.’”

“Kearns cited findings of the Distressed Properties Task Force that indicates the extent vacant abandoned zombie homes are a drain on the local economy. ‘We are going to be easily at over $150 million in real value where zombie properties are impacting our neighborhoods.’”

The Hartford Courant in Connecticut. “For increasing numbers of native Connecticut Millennials, ‘home for the holidays’ doesn’t mean ‘Connecticut’ any more. In 2014, more than 39,000 young adults in the 20-to-34 age group moved out of Connecticut, an increase of more than 20 percent from 2007. Despite the sharp increase here, a handful of other states — including some nearby — are shedding young adults at an even higher rate. Nearly 6.4 percent of Rhode Island’s Millennials left for another state last year, as did 6.9 percent of Vermont’s. New Hampshire’s rate was just under 6 percent. Some Rocky Mountain states have rates approaching 10 percent, according to recent U.S. Census data. Alaska’s rate is off the charts.”

“One of the challenges for young adults who would put down roots in the area is the high property tax rate, said Paula Ostop, a Realtor with William Raveis/Ellyn Marshall & Associates. ‘The property tax is rough,’ she said. Housing ‘prices are depressed, so we’re seeing prices that might be in the range of a 20- to 34-year-old, but they can’t afford the taxes.’”

“For older residents, the stock market crash in 2009 clobbered the investments they’d counted on for retirement, and many of them simply kept working, waiting for values to rebound. The housing market crash also kept them in-state, as the equity in their homes dropped and it made no sense to sell. But as the economy has thawed, many of the recently retired have decided that it’s time to go. ‘People are saying ‘We’re finally going to retire, housing prices are sort of getting back, and winter was hell last year,’ said Ron Van Winkle, West Hartford’s town manager. ‘Those Boomers have pulled the trigger.’”

“And their houses are going on the market. The number of homes for sale in greater Hartford in October was up 27.3 percent from last October, according to data from the Greater Hartford Association of Realtors, and there were 15 percent more closings. The median price was down 2.8 percent, but many people seem to have accepted that prices aren’t going to rebound to 2006 levels any time soon. ‘There’s so much inventory,’ Ostop said. ‘Prices are depressed.’”