The Housing Bubble

It’s Friday desk clearing time for this blogger. “When Congress voted overwhelmingly Thursday to expand the first-time homebuyer tax credit to include repeat buyers, it brought a ray of hope to segments of the Triangle housing market that have not had much to cheer about of late. The bill, which awaits President Barack Obama’s signature, adds a credit worth up to $6,500 for repeat buyers who have lived in their houses at least five years. The legislation also significantly raises the annual income limits required to be eligible to qualify for the tax credits.”

“Laurie Kelly, whose North Raleigh house is on the market for $430,000, is optimistic that the new credit will help her both sell her house and buy one in Virginia. Kelly’s husband recently started a new job in Washington, and the family’s house has been for sale since the summer. The Triangle housing market has a glut of houses priced above $400,000.”

“‘We have a beautiful home,’ she said. ‘We just have so much other beautiful competition.’”

“In Washoe County, strong activity at the lower end of the market has helped area home sales consistently beat last year’s numbers each month. Many attribute the sales pick up for entry-level homes to the tax credit, including some folks who admit to normally being leery about such federal programs. ‘I don’t necessarily agree with (the tax credit),’ said Ken Wiseman, broker-owner of Reno Rancho Realty. ‘But I must admit that it’s been very important for us here.’”

“‘I don’t think the market would be able to function on a normal scale without it. The whole market is essentially being propped up by the tax credit.’”

“Congress delivered an early Christmas present to the real-estate industry yesterday. Local real estate agents said the congressional action could lead to a busier-than-normal winter for home sales in Massachusetts. ‘I know it sounds self-serving, but I truly see this as a great stimulus (for the economy),’ said Gary Rogers, president of the Massachusetts Association of Realtors.”

“Nicolas Retsinas, director of Harvard’s Joint Center for Housing Studies, said the nation’s housing market is now on ‘government life support,’ so it’s important that the credit program was extended until next spring. But he said that, sooner or later, the housing market has to stand on its own two feet.”

“‘Tax credits borrow demand from the future,’ he said. ‘At some point, the government has to exit the subsidies business.’”

“Not everyone likes the idea of new tax credits for housing, including University of Wisconsin-Madison economics professor Morris Davis. He said home prices were stabilizing without further intervention and that extending the first-time buyer credit will cost the government more money and only move up home sales that would have taken place anyway over time.”

“‘There’s just a fixed pool of potential first-time homebuyers. So that means if you incent them to buy today, they are not going to be available to buy tomorrow,’ said Davis, whose specialty is real estate and urban land economics. ‘It’s basically the homeowner equivalent of ‘cash for clunkers.’”

“Becky Bowles, president of the Palm Springs Regional Association of Realtors, said it was fabulous that Congress extended the credit opportunities. ‘The credit makes a big difference to first-time homebuyers with limited funds available,’ she said, citing a recent survey from the California Association of Realtors that said 39 percent of those buyers would not be in a home in 2009 if the credit did not exist.”

“‘I think it’ll make a big difference in the people who are sitting on the fence,’ she said. ‘Everyone has figured out that we’ve reached a bottom, and there are incredible opportunities for buyers.’”

“Patrick Veling, president and founder of Brea-based Real Data Strategies, said the action by Congress holds potential to improve the lot of sellers trying to sell their mid-priced homes. On the other hand, Veling said one could argue that the overall economic strategy of artificially boosting the demand primarily through government insertion into the process is delaying the natural bottoming of the market.”

“‘Time will tell,’ he said.”

“Over the past few weeks, Michael Groendyk has raced against the clock. He’s scrambled to close on a home in Laurel Lakes, hoping to take advantage of an $8,000 federal tax credit. Now, it looks like the credit will be extended until next year. But Groendyk and his wife, Rebecca, who are in the their 20s, didn’t want to take any chances, with the original deadline looming later this month. They are scheduled to close on their new home in North Naples on Friday.”

“The Groendyks recently graduated from Western Kentucky University. They married in December and moved to the Naples area from New Jersey in May. The couple searched for a house for five months. They visited more than 60 and put in four offers before finally getting a contract. Two times they were outbid by other buyers, and another time they walked away in search of a better deal.”

“They are buying a foreclosure. The home has three bedrooms and two bathrooms and they are paying $249,000 — the list price. ‘We were pushing everything as hard as we could to get it closed in November — as soon as possible, really,’ he said. ‘We snuck it in.’”

“It is difficult to generalize about any group because there are always readily identifiable exceptions to the rule. Even so, the old saw about a Democrat seeing a man drowning seventy five feet offshore throws him both ends of a fifty foot rope and hurries off to ‘rescue’ someone else, while a Republican throws him a fifty foot rope and tells him to swim for it, appears to be relatively accurate.”

“What a mess we are in. On one side we have the Republicans who pretty much have a tin ear when it comes to recognizing human suffering and whose general response to someone else raising the issue is ‘get a job you dirty hippie.’ And on the other side are the Democrats who have such acute antennae that they perceive a problem even before it exists and who are institutionally and intellectually incapable of finding an actual workable solution. Not only are they incapable of providing a workable solution, most often their solutions make the problems even worse. ”

“A large part of the current economic downturn is due to the fact that the Congress required financial institutions to lend money to people who had neither the means nor the intention to repay it. Congressional Democrats engaged in years of hand wringing that the nation’s poor were being left behind in the surge of home ownership – the American dream. (It is the moral equivalent about worrying about the fact that fish cannot play the piano – they have no hands and the poor have no money. Sewing gloves on the fish will not work any better than giving loans to those who cannot repay them.)”

“But the Democrats never learn from a ‘failed solution.’ In the name of ‘economic recovery’ the Democrat Congress is right back with the same solution. This time it is the Federal Housing Administration. Committee Chairman Barney Frank of Massachusetts insists that these mortgages are needed to ‘keep prices from falling too fast.’”

“Just as a reminder that is the same Rep. Barney Frank who, along with the Sen. Chris Dodd, buried an investigation into identical lending practices at FannieMae and FreddieMac, declaring them to be sound institutions.”

“Fannie Mae will allow homeowners facing foreclosure to stay in their homes and rent them for as long as a year, as part of the US government’s latest effort to help troubled borrowers, while keeping more foreclosed properties from hitting the housing market. The initiative also would allow Fannie to keep inventory off already-saturated housing markets, and amounts to a bet the housing market would be stronger one year from now.”

“‘I’m sure Fannie is hoping that when they sell the properties, the values will be higher,’ said David Berson, chief economist for PMI Group, a mortgage insurer. ‘A year from now, we should be a year further into the economic recovery, and housing demand will be stronger.’”

“Japan is drifting towards a dramatic fiscal crisis. For 20 years the world’s second-largest economy has been able to borrow cheaply from a captive bond market, feeding its addiction to Keynesian deficit spending - and allowing it to push public debt beyond the point of no return. The rocketing cost of insuring against bankruptcy of the Japanese state is telling us the model has smashed into the buffers. Credit default swaps on five-year Japanese debt have risen from 35 to 63 basis points since September. Japan has decoupled from Germany (21 basis points), the US (22), and even Britain (47).”

“The IMF expects Japan’s gross public debt to reach 218 per cent of gross domestic product this year, 227 per cent next year and 246 per cent by 2014. This has been manageable so far only because Japanese savers have been willing - or coerced - into lending for almost nothing. The yield on 10-year government bonds has been about 1.30 per cent this year. The savings rate has crashed from 15 per cent in 1990 to near 2 per cent, half America’s rate. Japan’s $US1.5 trillion state pension fund (the world’s biggest) has become a net seller of government bonds this year, as it must to meet pay-out obligations. The demographic crunch has hit. The workforce been contracting since 2005.”

“Japan’s terrible errors are by now well known. It failed to jettison its mercantilist export model in time. It resisted the feminist revolution, leading to a baby strike by young women. It acquiesced in a mad investment bubble (like China now) in the 1980s, stealing growth from the future. It wasted its immense fiscal firepower, scattering money for 20 years on half-baked spending projects to keep the economy afloat. The quantitative easing was too little, too late, and this is the lesson for the West.”

“Builder KB Homes falsely inflated appraisals by an average of $30,000 on each of the 20,000 homes it sold nationwide from 2006 through 2008, according to a lawsuit filed in U.S. District Court in Orlando on behalf of a Clermont homebuyer. The lawsuit alleges that the national builder worked exclusively with a Plano, Texas, appraisal company that handpicked appraisers who would ‘play ball’ and base their values on contract prices rather than the actual sales — a practice that helped KB Homes inflate home values at a time when they were actually falling.”

“The buyer who filed suit, Stephanie Sullivan, was unavailable for comment. She and her husband purchased a four-bedroom pool home in Clermont’s Southern Fields subdivision for $421,400 in October 2006. At the time, the house was appraised at $425,000, but a forensic appraisal performed later concluded it had been worth $360,000 at the time of the sale, the lawyer said.”

“Sullivan’s husband lost his job six months after the purchase and they were unable to make payments on the inflated mortgage, forcing them into foreclosure and bankruptcy, according to the lawsuit.”

“Frank Gregoire, former chairman of the Florida Real Estate Appraisal Board, said that, while he had not reviewed the lawsuit, he was aware of it. Some of the issues raised in the complaint were commonplace during the housing boom earlier this decade, the longtime Tampa-area appraiser said.”

“‘It was common practice for builders and subdivision developers to have pet appraisers,’ Gregoire said. ‘That was true not only for subdivisions but also for builders with a subdivision or development — and, in particular, for condo converters.’”

“As promised, federal authorities have amped up criminal mortgage fraud prosecutions. During the last week alone, cases were filed in U.S. District Court in Tampa against at least 11 people accused of lying to lenders and property appraisers to obtain millions in mortgage loans during the property boom that ended last year.”

“”Thirty of the defendants were charged in Tampa. The defendants include mortgage brokers, straw buyers and an unemployed day trader. The FBI sought an arrest warrant for Richard Likane, an unemployed day trader who authorities say had no income but managed to obtain two loans totaling more than $300,000.”

“According to court papers, he lied about his monthly income in obtaining a mortgage of $161,000 for 10808 Dragonwood Drive in Tampa in February 2006, a year in which he actually lost $3,000 trading stocks and had no salary or wages. In March 2007, he obtained a home equity line of credit for $195,000 on a property at 3857 Mariner Drive in St. Petersburg, falsely representing his annual income as $75,000 when it was zero.”

“In January 2008, Likane filed for bankruptcy and testified under oath that he had not been employed since 2000, and had been a day trader of stocks and a house flipper since then.”

“A group of at least 20 disgruntled former Trump Tower Tampa buyers plans to sue Donald Trump, accusing the New York tycoon of falsifying his role in the $300-million project that went bankrupt last year. Trump misrepresented himself as a tower investor when he was only lending his name to the project in a licensing deal with Tampa Bay developer SimDag Robel LLC, said Kenneth Turkel, a Tampa attorney hired by some of the condo buyers.”

“Scores of buyers plunked down 20 percent deposits on units that ranged in price from $700,000 to $6 million. Developers didn’t refund half the deposit money, and buyers aim to recoup losses from Trump though the courts.”

“During the Tampa unveiling in 2005, Trump told the St. Petersburg Times that he had a ’substantial stake’ in the condo tower. ‘I recently said I’d like to increase my stake but when they’re selling that well, they don’t let you do that,’ Trump told the newspaper.”

“Richard Golod, executive director for Van Kampen Investments said…’If the economy is going to get back on track, consumers are going to have to spend savings, or equity in their homes, or borrow.’”

“Golod was keynote speaker at the Economic Forum 2009 in Nampa Nov. 5. Golod said the turnaround has begun. In fact, it began in June and July, but few people recognized it, he said, noting that the federal government has been working hard to make certain the economy continues to move forward with few hiccups.”

“He said the housing and construction industry may never hit its norms. While some parts of the country are seeing a bottom, others are still in freefall. In the Treasure Valley there may be a 15-month supply of homes on the market, but places like Tampa, Fla., Las Vegas, Nev., Scottsdale, Ariz., and parts of California are seeing a five-year supply of homes.”

“Unemployment in Mohave County where Bullhead City is located is around 10 percent. The median house price here has fallen from nearly $190,000 in January 2006 to less than $93,000 now, a drop of more than 50 percent. Not so long ago this town on the Nevada border was in full boom mode. It was a magnet for people coming to work in the casinos across the Colorado River in Laughlin, plus Californians looking to retire here or have a second home at a fraction of the cost in their own state. Construction workers flocked here to build homes and roads. All told, successive booms turned Bullhead City from a fishing village just a few decades ago to being a city of more than 40,000 people.”

“John McCormick of McCormick Development helps run a number of family businesses – a water company, a construction company, a land development company and a real estate broker’s office – and says that many of the people walking away from homes here are either speculators or Californians who bought a second home here.”

“‘If they end up in trouble, it’s so much easier to walk away from a second home than a primary residence,’ he said.”

“Millions of American homeowners are ‘underwater’ on their mortgages - owing more than the value of their homes - and would be better off walking away. That is the suggestion Brent T. White, a University of Arizona associate professor of law, makes in his newly released working paper, ‘Underwater and Not Walking Away: Shame, Fear and the Social Management of the Housing Crisis.’”

“White, whose article will be published in this month’s issue of Arizona Legal Studies, said fear, guilt and shame are what keep many homeowners from making rational economic decisions. ‘These emotional constraints are deliberately cultivated by the government and lenders who self-servingly tell borrowers that they have a moral and social obligation to pay their underwater mortgages,’ said White.”

“‘Meanwhile, lenders ruthlessly seek to maximize profits or minimize losses irrespective of concerns of morality or social responsibility,’ he added.”

“A federal judge rejected a request by Angelo Mozilo, the former chief executive of mortgage lender Countrywide Financial Corp, to dismiss a U.S. Securities and Exchange Commission lawsuit accusing him of securities fraud and insider trading. In a Tuesday court filing, U.S. District Judge John Walter in Los Angeles also rejected requests by David Sambol and Eric Sieracki, respectively Countrywide’s former chief operating officer and former chief financial officer, to dismiss related SEC fraud charges.”

“Countrywide had been the largest U.S. mortgage lender before liquidity dried up in summer of 2007. The insider trading charge concerned Mozilo’s alleged exercise in 2006 and 2007 of more than 5.1 million stock options and sale of the resulting shares, leading to more than $139 million of profit.”

“According to the complaint, Mozilo set up the plan shortly after admitting in an email to colleagues that Countrywide was ‘flying blind’ as to the quality of its loans.”

“Real estate investor Barry Sternlicht is betting the Greenwich housing market is making a comeback. Sternlicht raised the asking price of his 5.8-acre estate on Round Hill Road to $5.95 million, although the town is headed for its worst year for property sales in more than three decades.”

“It was first listed for sale in June 2008 for $8.25 million, according to the Greenwich Multiple Listing Service and his broker. The price was reduced three times from September 2008 to April of this year. Sternlicht bought the place in November 1994 for $2.93 million, according to the Greenwich Assessor’s office.”

“‘We increased it because we felt like we were giving it away,’ and there was interest in the property, Sternlicht’s broker, Jean Ruggiero, said in an interview. ‘Just because people are lowering their price doesn’t mean it’s right, because he’s not a desperate seller.’”

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The second look at rating the media and the housing bubble turns to the northeast. First, the good:

Concord Monitor in New Hampshire, May 2005. “Whatever happened to the $150,000 home? Not too long ago, you could buy a nice house for that kind of money. Today? Not in Concord. ‘Today, $150,000 is typically a very run-down ranch on a very small lot outside of town,’ Jim Knowlton, an agent in Concord said. ‘You’re looking at an old farmhouse that’s ready to fall down in Andover, a New Englander in Franklin. There’s a Grizzly Adams home on 40 acres in Danbury that sold for $110,000.’”

“‘It’s really a game of patience, being alert and ready when the house comes up,’ said Brenda Perkins Anukem, an agent with Kathleen Gallagher Family Realty. Anukem said at least three of her recent homebuyers decided to use an 80/20 mortgage. ‘That’s becoming more and more common. I’ve only seen it for the last year and a half. It’s just an option that keeps their payment cost down so it helps them afford a little more house. Not that it doesn’t scare me.’”

“But for many starting out, getting a home for less than $200,000 isn’t simply a goal - it’s a must. While median home prices grew nearly 14 percent between 2001 and 2003, salaries only inched up 1.4 percent, according to a statewide report on affordable housing. Mary Downes, director of education at the Concord Area Trust for Community Housing, said the $150,000 threshold is an important one because it’s what most average working people can afford. To make the jump from $150,000 to $200,000 means an extra $300 a month in mortgage payments.”

‘Caught in the gap, Downes said, are ’single-income families, whether they’re married with one person staying home, or a single mom and young people.’ ‘More and more people are being shoved out of the market, which means people in the market are paying more than they should in terms of their monthly budgets,’ she said. ‘Then people start making not-so-smart decisions about the kind of mortgages they get.’”

The Boston Herald, April, 2005. “Dorchester and Roxbury homeowners defaulting on mortgages rose 35 percent over the past year, said Anderson, of The Real Estate Analyst. And Dorchester single-family and condo prices are falling after record highs last year. Dorchester single-family home prices dropped during the same period to $320,000 from $370,000, while condo prices slid to $245,000 from $265,000.”

“An economist from the University of Massachusetts at Boston, documented in a recent study that found a 60 percent rise in so-called subprime lending in Boston neighborhoods. ‘There is a whole confluence of factors,’ said Anderson, a longtime Dorchester homeowner. ‘We’ve hit the wall.’”

Newsday in New York, May 2005. “Barbara Corcoran is even more of a symbol of the city’s obsession with real estate now. She’s on ‘Good Morning America’ and the ‘Today’ show advising people how to buy and sell. By September she hopes to host a weekly real estate show on national television. A newsletter from a group of Prudential downtown Manhattan brokers said recently, ‘You heard it here first: The market is slowing down and pretty significantly too.’ One of those brokers says people are reducing ‘really extreme asking prices’ for high-end apartments but that the market’s still strong.”

“Corcoran concedes there are periods when housing markets drop. Over a 3 1/2 year period beginning in 1987, city prices dropped about 32 percent. She admits there are some people who risk getting hurt badly in this housing boom.’Is it dangerous to be a flipper if you don’t have an educated eye? It’s ridiculous,’ she says.”

“Her advice? If you’re a seller, underprice your property by 10 percent and you’ll set off a buying ‘frenzy.’ If you’re a buyer, overbid to get the property you want, and the rising tide of the real estate market will protect you.’”

From Curbed.com in New York. “i just spent more than 24 hours camping out on the street to buy a condo…that’s what it takes this days to buy a condo pre-construction. i showed up at 9:30am on saturday morning for a sunday 11:00am..offering and was the THIRD person on the line…i had gone to walk around the neighborhood to reassure myself it was ok to buy so lost a spot on the line….crazy stuff happend through thte night too. we got eggs thrown at us from peole at 147 front street (where the sales office is located).”

“hundreds of people asked ‘what are you doing in sleeping bags on the sidelwalk in the middle of the day?’ and then laughed at us.”

The New York Post, March 2005. “Investors are so eager to get their hands on New York City commercial real estate that they’re driving up prices beyond what the rent rolls would justify…Average asking rents in office buildings were $47 a square foot last year, compared to $59 in 2001..there could well be some element of speculative buying.’”

“WRONG-WAY GREENSPAN STRIKES AGAIN…’These rate hikes are really a joke anyway. Even as he’s pretending to tighten credit through these rate increases, the Fed has actually been allowing the nation’s money supply to grow rapidly at more than 5 percent over the last year. If all that money is available, it’s going to be put to use — creating the next bubble.”

“The winner, I think, will be the housing bubble. If all these rate hikes finally take hold over a short period of time they will deflate home prices just in time for Greenspan’s Farewell Apology.”

The bad:

Indy Eastside in New York, May 2005. “George Simpson of Suffolk Research Service said, ‘Just close your eyes, buy some vacant land anywhere out here, and you can make an almost unbelievable profit. You can’t make one-tenth of this kind of return on investment with any other speculation.’”

“Chris Chapin of Prudential in East Hampton: ‘When you have people who don’t care what they have to pay for a parcel of land, they just want it, that affects prices.”

“Realtor Joe Kazickas; ‘What percentage of property owners do you know who can afford to buy the houses they live in now? I would guess the answer is about 30%. What’s going to happen in 20 years when the baby boom generation starts dying off? What happens when we are on the backside of that bubble? No one knows. But there won’t be the buyer base then that there is now.’”

The New York Times, May 2005. “‘In the last five years it seems like everyone wants to be a broker,’ said Diane Saatchi, a senior vice president for Corcoran . ‘There’s not enough time on the part of the senior brokers to really do the proper training because many of us are too busy making money.’”

“The National Association of Realtors says its membership has swelled to 1.1 million now from 766,560 in 2000, a rise of 46 percent. In Manhattan the number of brokers and sales agents has jumped 42 percent, to 26,220, in the same period.”

The Journal News in New York, April 2005. “The inability of buyers to afford houses appears to increase the demand for lower-priced condominiums and cooperative apartments, pushing those prices up as well. That’s what happened in Orange County. As potential buyers were priced out of what they wanted, they bid up lower quality homes. It really is just a mind game to convince yourself that the $300,000 house is now ‘worth’ $500,000.”

“The affordability of co-ops led Kyana Kelley to bid on a one-bedroom apartment for $90,000. She said she hoped to close in the next few weeks. Kelley, age 30, figures to sell the apartment and trade up in a few years on continued price strength. ‘It’s going to keep rising,’ she said.”

“Agent Bobby Palazzo said demand in Putnam was being fueled by people moving up from the Bronx, White Plains and Yonkers. ‘You can still get something decent up here for under five,’ Palazzo said, meaning $500,000. ‘Unfortunately,’ he added.”

The Boston Globe, March 2005. “Between 1997 and 2004, homeowners under the age of 25 jumped 11 percent; and now these youths make up one-quarter of all property owners in the Northeast. ‘I am young and property values are soaring,’ said 19-year-old Rayford Kelley, who bought a $560,000 fixer-upper in Roxbury with no money down. He had trouble leasing several units after he forced out tenants who refused to pay rent. Kelley agreed to lease one apartment to friends…He’s already worried about the number of visitors coming through the house, into which he has put more than $10,000 in repairs, but doesn’t want to say anything to his friends.”

“25 year old Paul Phadungchai said he probably overspent with $50,000 in renovations that include a whirlpool tub and granite kitchen countertops. ‘For a kid like me who had college taken care of and was able to save money a lot of the time, not being able to save money ever is really a life change. It’s all gone and now all I’m stuck with is a huge mortgage. You have to really think about that.’”

From CNBC, April 2005. “He’s a roofer and she owns a hair salon, and now Paul and Caren Matera are applying their entrepreneurial skills to New York’s red-hot housing market. After attending a $3,000 real estate seminar, last July the Materas bought a little bungalow on Long Island. They sold it two months later and made a 50 percent profit. Since then, the couple has taken equity from their own home and invested in a half dozen properties now worth over $1 million — much of it pre-construction properties in red hot Florida developments.”

“So far, Paul and Caren Matera haven’t seen any slip-ups in their real estate investments, but that doesn’t mean the roofer isn’t losing sleep over his retirement dreams. ‘Every time you close on a deal, you lie in bed worrying at night,’ said Paul Matera. ‘I don’t know how my wife sleeps at night. She sleeps pretty soundly while I’m lying there awake.’”

“Most of these Californian real-estate investors are looking for investments beyond the Golden Gate. Group member Tessie Cuy says she can buy real estate outside California for less than in her own home town. And Doug Boggs, another investment club member, says he is focusing on investments in the Sun Belt region: The southern and southwestern states of the U.S. ‘Florida, Arizona and Vegas — that’s where everybody else is going too. It’s kind of like the stock market, really,’ said Boggs.”

“That sort of attitude worries William J. Poorvu, a former Harvard Business School professor . ‘If you think you’re just buying a lottery ticket and putting down the amount of money you’re willing to lose, that’s one thing,’ said Poorvu. ‘If you’re investing your savings in something like this, I think you are making a mistake.’”

Market observers, the best: “Appraisers say there is pressure on them to inflate home values, and there is concern that if people pay too much for their homes it could lead to more foreclosures if housing prices tumble. A recent survey of 500 appraisers found that 55 percent of them personally feel pressured by sellers, agents, and even lenders to inflate home values by 10 percent. And one-third of the appraisers surveyed said they fear losing business if they don’t comply.”

“Jonathan Miller, CEO of an appraisal company in Manhattan, said he thinks 75 percent of appraisals are inflated. ‘The people who are paid on commission probably won’t be there when those problems come in the future.’”

You decide, May 2005: “The gap between income and Massachusetts home prices is the widest since the peak of the 1980s housing bubble, and that gap, intensified by rising interest rates, should cause home prices to dip later this year..declining about 3 percent. ‘It’s not going anything like the ’80s, but there’s going to be a correction,’ said Alan Clayton-Matthews, of the University of Massachusetts. ‘There has to.’”

“According to the Massachusetts Association of Realtors…the state’s median single family home price rose 11.9 percent to about $346,000 while the median condominium price rose 14.5 percent to about $265,000. John Dulczewski, spokesman for the association, said the group expects home sales to slow and prices to moderate this year, but not to fall. Even though mortgage rates are likely to rise, an improving economy and job market should continue to spark demand.”

“He added that supply remains tight. Last year, the state had only a 6.6-month supply of homes, compared to 8 months in a so-called balanced market when supply and demand are about equal. In 1996, shortly before the housing market began its recovery, the state had a 9.4-month supply. ‘We are still calling for price appreciation,’ Dulczewski said. ‘The supply just hasn’t kept up with demand.’”

“Economist Mark Zandi said, ‘The housing market is through the roof, way outside anything we’ve seen historically. The longer it goes on, the more significant a correction we’ll see.’ Zandi said the housing market, fueled by low interest rates, is becoming increasingly speculative in many metropolitan markets, including Boston. This means buyers, instead of basing decisions on fundamentals, are betting that prices will rise, leading them to stretch their finances and take out risky, short-term mortgages that are vulnerable to interest-rate increases.”

“In California, for example, two-thirds of mortgages in the first three months of the year were interest-only adjustable rate mortgages.”

May 2005, “Zandi said he’s worried about the vulnerability of the mortgage-backed securities industry, where hedge funds and other investors have made huge bets. That derivative industry funds many mortgages for home buyers, particularly for low-equity loans. Problems in the mortgage-backed securities market could result in a credit crunch for would-be home buyers.”

“‘If things continue on as they are for another year or even six months, the potential for price declines is that much greater and the risk to the economy is much more significant,’ Zandi said.”

“Yale University economist Robert Shiller, ‘I think this is actually the biggest [real estate] bubble in U.S. history and possibly even world history,’ he said in a telephone interview yesterday (May 23rd).”

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When did America switch from working for reward to working to avoid punishment?

by ahansen

The meat department at Vons hadn’t put the proper bar coding on the goose I had ordered, so the clerk and I had a five-minute wait while the frozen beast was properly inventoried and returned to the check-out stand. The store was eerily devoid of shoppers for a Friday afternoon—especially one before a major party weekend like Halloween. But it was the end of the month, and the town is mostly inhabited by retired civil servants and other people who receive a government check for a living, so I wasn’t all that perplexed by the lack of activity. The one lady in line behind me was cheery and chatty; we didn’t mind the wait, using the time to remark on what we were planting in our winter gardens.

What did catch my attention, however, was the checker’s agitation. He kept glancing first at his watch, then to the back of the store, then up the stairs to the manager’s office. Since my fellow shopper and I weren’t at all hurried, and the store was basically empty of customers, I asked what had him so concerned.

“This is really going to screw with my production numbers,” he said nervously. “They keep track of how fast we process customers through the line, and tally us up at the end of the month. This isn’t going to look good for me at all.”

He continued, “It would be different if we got a reward, or a raise or something for having faster check-throughs, but we don’t. Their machines rule by intimidation.”

I mentioned that surely “corporate” would take into account the fact that business might be cyclical in a small resort town full of seasonal workers and welfare recipients—especially at the end of the month when the summer tourist season is over. But, “No,” he told me. “It’s just more insanity for us to deal with. They pit us against each other and their waiting list of people who don’t mind working part-time. It works.”

In the last year or so, I’ve wondered why there was such turn-over in the store’s long-time employees, many of whom I’ve known by name after years of shopping there. I can’t imagine they’ve all left voluntarily during a period of such economic uncertainty. Lately it seems that every time I go into a familiar market, an entirely new group of people is working there. Now I am beginning to understand why.

When I got home, a rambling, rather plaintive telephone message awaited on my answering machine. A dear friend, now four years from retirement at the Jet Propulsion Laboratory, was recently downsized from the Mars project, and because he’s been identified as a “national asset” was given a consolation position working part time in another related division. Supposedly a 20-hour-a-week slot, he’s slowly driving himself even crazier trying to keep from losing this job too.

He estimates he puts in 60-70 hours a week on lab, often sleeping there in his cubicle or in his car in the parking lot. The poor guy has accumulated literally months of vacation time over the years, but he’s afraid to take any of it for fear that while he’s gone they’ll bring in someone who has been waiting in the wings for a spot on the project. With two kids in college, a cruddy little apartment to call home, and no 401(k) left to speak of, he’s essentially trapped in a job he hates. In what, to my mind, is a sure-fire losing proposition, he’s been trying to keep his sanity by proving Goldbach’s Conjecture in hopes of claiming the monetary prize that would salvage his retirement.

Even my longtime housekeeper—the kind of gem the organizationally-challenged would kill for—is frazzled and worried, as more and more of her clients reluctantly cut back or cancel their contracts due to budget constraints. She finds herself working longer hours at a faster pace just to keep the customers she does have from making the same decision.

With so many of us in danger of becoming unemployed, those who are left increasingly labor under a cloud of threat and intimidation—whether real or implied. Where we used to be motivated by raises, bonuses, options and promotions, our great motivator is now fear. And it’s not just fear of losing a source of income. For those who define themselves by their jobs, the loss of identity is often just as traumatic as the loss of a paycheck. Losing one’s sense of community—waking up one morning to the realization that the comforting familiarity of camaraderie and routine is gone—can be as debilitating a shock to the system as realizing one has just joined the ranks of the impoverished.

As Joni Mitchell once wrote, “…you don’t know what you’ve got till it’s gone….”

Which leads me to my point.

For five years, Ben Jones has, largely through his own tireless efforts and on his own dime, kept this blog online as a real-time archive of our thoughts on what has turned into a global fiasco. Years from now, historians will surely study what’s been written here about these events as they have unfolded, and perhaps will be wise enough to glean from them how to avoid repeating the blunders we’ve made.

Ridiculed and excoriated, even after his prescience has proved correct, Ben has plugged ahead with his chronicle, day after day, week after week, month after month—a latter-day Samuel Pepys recording a daily journal of his own plague years.

As SanDiego RE Bear so eloquently discussed last week, *Comment by San Diego RE Bear 2009-10-29 13:54:26 , HBB is home to a diverse, often impassioned community of contributors who really care about what happens to our Country and its institutions. The forum we have created and fostered here is unique on the internets, both in the caliber of its discourse and the civility in which it is presented.

Our words are read by people whose actions and decisions affect the daily lives of millions of folks around the world. What we post here matters.*

SO SEND THE HBB A BUCK A WEEK.

Surely you get 25 cents worth of enjoyment out of reading through the comments sections at the end of each digest? How many times a year have you come to HBB for information, or entertainment, or just the diversion of a good read? And if you want to see how often you’ve found a safe place to vent your spleen, where people actually take the time to consider what you have to say then give you honest feedback, go to lavi’s site, http://www.inksex.com/ and check out the number of comments you’ve posted to the blog since you joined.

How much have you saved on therapists, real estate attorneys, and unhealthy hobbies since you started reading HBB? More to the point, how much have you saved by NOT buying that overpriced piece of real estate you thought you just had to have; the one that everyone was nagging you to go out on a limb for?

Stop gloating and send in 1% of the money this blog has saved you.

For all of us Cassandras and haters, trolls and curmudgeons, having a place to post our crackpot observations has got to count for something. Where else can we say “I told you so” over and over everyday without someone finally smacking us in the kisser and calling the authorities? If that’s not worth a few bucks, I don’t know what is. HBB is a sanctuary for our collective angst. If the site goes away, you’ll probably want to choke something. Think of the legal fees. Think of the horrible doctor/vet bills you’ll incur. Think of the children— and dig deep, brothers and sisters, for the Good Work.

We may wake up one morning, look out at a beautiful day, put the coffee on to brew, pull up the puter, click on HBB and watch as the screen comes up blank. How discouraging would that be? And I don’t even want to think about turning in for the night without having read through what the cast of characters has had to say about the day’s events.

So c’mon, guys, cough up. Right now. If I can do it, YOU can do it. Surely you can scrounge $10 out of an old sock somewhere? It’s our blog and it’s what we make of it— but only if we chip in every now and then. The PayPal button is up there on your right. Use it.

Post off-topic ideas, links and Craigslist finds here. Please visit the HBB Forum.

Post off-topic ideas, links and Craigslist finds here. Please visit the HBB Forum.

Post off-topic ideas, links and Craigslist finds here. Please visit the HBB Forum.

Post off-topic ideas, links and Craigslist finds here. Please visit the HBB Forum.

Post off-topic ideas, links and Craigslist finds here. Please visit the HBB Forum.

It’s Friday desk clearing time for this blogger. “The Wichita area appears to be losing ground in the foreclosure epidemic. ‘For us, it’s directly tied to our employment situation,’ said Stan Longhofer, director of the Center for Real Estate at Wichita State University. ‘This is about the time when people who got layoff notices are starting to get hit with foreclosures.’”

“He said that the easy financing may not have led to a large housing bubble, but it did leave quite a few people with little equity when it comes time to try to sell the house. The homes haven’t lost value, but laid-off workers may discover that their homes haven’t appreciated much in recent years. So, he said, instead they may let the house go into foreclosure. ‘They’re not really upside down,’ he said, ‘just not upside up enough.’”

“Earlier this year in Los Angeles, Goldman Sachs took possession of the home of Gladys Aguirre, a housecleaner who’s married to a construction worker. Together, the couple listed monthly earnings of $7,480, including $3,480 from a job she’d held for two months. Aguirre originally took a $444,000 subprime mortgage on Sept. 1, 2005, from a subsidiary of big subprime lender Ameriquest Mortgage Co., which shut down in 2007. The adjustable interest rate sent her monthly payments zooming to $3,800 from $2,479, and Aguirre couldn’t keep pace on that loan or a $119,000 second mortgage. She filed for bankruptcy protection.”

“Aguirre’s Los Angeles lawyer, Eber Bayona, declined to discuss her case, but said that subprime loans amounted to ’setting up the person for failure’ because interest rate adjustments hit borrowers with ’shock payments.’ For example, he said, loan agents promised applicants that they could buy a $600,000 house for payments of $1,200 a month, and the buyers ‘never read the fine print … (and) didn’t know their interest would increase and that eventually they would lose their house and their money.’”

“The foreclosure crisis started with sub-prime borrowers, but in the last six months, it has increasingly reached unemployed homeowners like Cesar Hernandez. Four years ago, the construction worker put in 50 hours a week. He bought a three bedroom house in Palmdale for his wife and daughter. But he hasn’t worked now for eight months, and he can’t make his mortgage payments. He has two weeks to get out of the house.”

“‘I don’t know what I’m gonna do,’ Hernandez said, nearly breaking down into tears. ‘I just really don’t have a place to go.’”

“About 19 miles east of Lodi, you’ll reach a 505-acre piece of property known as Higgins Ranch. Until the economy took a nosedive, this was the future site of a 600-house development. It was going to change the town of Wallace. Then the market dropped.”

“The two developers who owned the property each filed for bankruptcy in 2008, with one of them reportedly owing various banks more than $972 million. Now Higgins Ranch is up for auction, with a minimum price of $750,000. It’s a far cry from the $3.2 million the developers had briefly sought when they placed it on the market. The amount is also less than the reserve in a spring auction, when nobody bought it for the minimum price of a little less than $1.2 million.”

“‘Higgins Ranch would best be described as a gleam in someone’s eye,’ said Chuck Cantoni, a long-time member of the Wallace Community Services District.”

“If you’re listing your house in Utah County, be ready to slash your price. According to data released by the Utah Association of Realtors and the Salt Lake Board of Realtors…the average price dropped from $229,900 in the third quarter of 2008 to $215,000 in the third quarter of 2009. Bruce Arnett wanted to move his family into a larger home so his father, who has multiple sclerosis, could move in. He took the plunge and moved from his house in Eagle Mountain to Traverse Mountain in Lehi about two weeks ago. He decided to rent out his Eagle Mountain home.”

“‘We knew the prices were going to be the lowest that they’ll be for several years,’ he said of his newly purchased Traverse Mountain home.”

“Lindsay Jones is hoping the third time’s the charm. The aspiring first-time homebuyer has fallen out of escrow twice, and is waiting to find out if her offer on a third property will result in the actual purchase of a residence. She started looking seriously in the spring, wooed by tax incentives and her conviction that home prices were at or near the bottom. Jones hoped to take advantage of an $8,000 federal tax credit for first time homebuyers that will end in November.”

“‘That was a huge factor,’ she said. ‘It figured into my purchase price, because it was part of my budget for making repairs. You walk into even the ones in nice areas and they’re seriously gutted. People got really upset and kicked holes in walls or left all their trash everywhere or took off with major appliances.’”

“The Obama administration endorsed plans to extend an $8,000 tax credit for first-time homebuyers, saying it is helping stabilize the nation’s housing market. The tax break has ‘brought new families into the housing market and contributed to three consecutive months of rising home prices,’ Treasury Secretary Timothy Geithner said.”

“Lawmakers also said they won’t extend the break beyond the new April 30 deadline. ‘The American people should understand this — and the affected industries — this is the last extension,’ said Senator Johnny Isakson, a Georgia Republican. ‘Tax credits like this only work by creating the sense of urgency to take advantage of them.’”

“A Senate committee reached a compromise yesterday to extend the $8,000 tax credit for first-time home buyers, a boost the housing industry expects will help it pull out of its two-year-old downturn. Lawmakers in Washington also added a $6,500 tax credit for other primary-home purchasers and raised the qualifying income limits to $125,000 for single taxpayers and $225,000 for joint taxpayers, housing-industry sources said.”

“The credit has helped, acknowledged Marshal Granor, a principal in Granor Price Homes, of Horsham. But he added, ‘I’d love for it to go away, for a month.’ ‘People who believe there is no rush aren’t buying, they are waiting for more bargains from more squeezed sellers,’ Granor said.”

“Exactly who made Bernadine Shimon think that she could buy a new house shortly after declaring bankruptcy and losing another home to foreclosure? The American taxpayer, that’s who. Without a Federal Housing Administration willing to guarantee a $125,000-plus mortgage, this Denver-area schoolteacher’s recurring ‘dream of homeownership’ could not come to pass. Shimon’s down payment was a tiny 3.5 percent. This single mother is so strapped that she had to cash in her retirement savings to come up with the 3.5 percent. Her case was cited in a New York Times article about, not surprisingly, the sad shape the FHA finds itself in.”

“Much of the blame for the housing bubble-then-bust goes to these government agencies. Kenneth Donohue, inspector general of the Housing and Urban Development Department, seemed to be shaking his head. ‘What does the FHA think it is doing by asking only 3.5 percent?’ he asked. (FHA is part of HUD.)”

“But committee Chairman Barney Frank of Massachusetts insists that these mortgages are needed to ‘keep prices from falling too fast.’ Thing is, we can’t support real-estate values with shabby lending practices. That’s what got us into trouble.”

“Florida’s economy remains in a downward spiral, according to sales tax statistics released this week by the Florida Office of Economic & Demographic Research. Consumer and business spending statewide fell 7.5 percent from August 2008 to August 2009. Spending in Palm Beach County dipped 7.4 percent, while Treasure Coast sales fell 4.2 percent from a year earlier.”

“Blame the real estate bubble of 2005 and 2006. Florida’s property frenzy sparked rapid rises in home prices, rampant overbuilding and record-low unemployment. Now, the state is suffering from the hangover created by the real estate party. ‘We’re coming out of a deeper hole than the nation at large,’ said University of Central Florida economist Sean Snaith.”

“When the Monterrey apartments in south Fort Myers sold for a record-breaking $79.6 million in March 2006, its buyers had high hopes of converting its 408 units into condominiums at a nice profit. But less than four years later, the luxury complex near HealthPark hospital is the subject of a $65.8 million foreclosure filed by the lender. Monterrey was never turned into condos and it remains a rental community.”

“As the residential real estate boom peaked in 2004 and 2005, there was heavy demand by investors and home buyers to get into the market and apartment complexes provided a quick solution when demand couldn’t be met by existing houses and new construction, said Michael Timmerman, a Naples-based senior associate with Fishkind & Associates. Developers bought large apartment complexes and sold the individual units as condos, creating what was almost ‘an infinite amount of product people could buy,’ he said.”

“But as prices slid starting in early 2006, condos became less attractive and harder to rent out — now it’s often cheaper to buy or rent a house, Timmerman said.”

“One of the hardest hit is Renaissance, converted from apartments four years ago at the height of the boom. Foreclosure actions have been filed against the owners of 24 of the 112 units and Bill Davis, who’s on the condo board, said several units have substantial damage inside them from months of neglect. Still, he’s optimistic.”

“‘We’re getting more and more money coming in’ as banks take back the condos in foreclosure and sell them to new owners, Davis said. ‘The landscaping’s kept up, the pools are kept up and we actually have a balance in the bank account.’”

“The number of homes in foreclosure continued to rise in the Portland-Vancouver metro area, according to a third-quarter tally. There were 6,123 total housing units in foreclosure in the third quarter in the Portland-Vancouver area, up more than 78 percent from the 3,432 houses in foreclosure during the same period in 2008. ‘It wouldn’t shock me if it was at least two more years before we work our way through the troubled properties,’ said John Bruce, a mortgage banker with Lake Oswego-based Summit Funding Inc.”

“The local real estate market has lately been hampered by the high unemployment rate and a new wave of ‘option ARMs’ or adjustable rate mortgages, Bruce said. While the values of homes were rising, borrowers were happy with option ARMs, Bruce said. However, many of those loans have now reached a five-year ‘reset’ period in which loan amounts will reflect the true interest amount.”

“‘With the clarity of hindsight, there’s no way they can make those payments,’ Bruce said of home loan borrowers with option ARMs.”

“The foreclosure crisis has taken a turn in California’s wealthy Marin County, according to Miriam Alex-Lute at Rooflines. Marin residents waged a legal fight a few years back to keep out Habitat for Humanity, the charitable group that builds houses for low-income buyers. But now that abandoned, foreclosed houses are showing up in Marin, Lute reports the county is opening the door to Habitat, which will rehab one of the foreclosed properties.”

“Just three years ago, Marin county residents were busy raising money for a legal fight to stop Habitat for Humanity from building four homes affordable to families making under $56,000/year, saying it would ‘blight’ their exclusive neighborhood of million dollar plus houses. (The project is still being debated.)”

“But now they are being welcomed with open arms in another part of the county as they renovate one of the foreclosed homes that even Marin has acquired a passel of. Habitat bought the house, which needs extensive rehab, for $215,00. It doesn’t sound affordable exactly to those of us in more affordable parts of the country, but in a county where the median home price is $800,000, I guess it qualifies.”

“Nothing like a wave of foreclosures to change those ‘Not In My Backyard’ attitudes.”

“The economy is creeping out consumers this Halloween season. Sales of costumes, props and other accoutrements are trending lower this year — locally and nationally — as consumers opt for homemade outfits over elaborate store-bought or rented ensembles. ‘In the 31 years I’ve been in business, it’s the worst year ever,’ said Geraldine Alfieri, owner of Geraldine’s Costumes (in) Cathedral City.”

“Business is down 80 percent over last Halloween, largely because of a lack of conventions and corporate events, she said. ‘Corporate business is almost gone,’ she said.”

“Andy Allen, 86, of La Quinta is going as a hippie. He bought a vest, headband, round glasses and a peace-sign necklace. ‘It’s cheap,’ Allen said.”

“Bridgeport tops the list on a real estate Web site’s index of the best Chicago neighborhoods for trick-or-treating. Zillow compiled its Trick-or-Treat Housing Index, used its own home value index and statistics on density, walkability and crime to find out where kids are likely to get the most candy, with the least walking and the smallest safety risks.”

“Ranking fifth was the trendy Lakeview neighborhood a few miles to the south. Zillow said the ‘beautiful homes’ in the neighborhood could mean plenty of trick-or-treat candy and ‘real estate eye candy.’”

“The North Side’s Rogers Park neighborhood came in fourth, in part for the ’scary good real estate deals’ for adults with housing prices down 16 percent.”