The Housing Bubble

It’s Friday desk clearing time for this blogger. “It has a been several years, and several real estate transactions, since Kianoush Etemadi, 57, and her daughter, Paris, 16, had a home of their own. Etemadi owned a house in Rockville, Md., until 2005, but sold it after deciding she could save money by moving into the Bethesda home of her younger sister, Azar. In 2006, with the Bethesda real estate market booming, the sisters decided to put an addition on that house, for which Azar took out a $200,000 loan; during construction, the three would live nearby in yet another house, which Etemadi bought the same year, planning to flip it, for $505,000 with no money down.”

“By 2007, however, the sisters were overextended and the market had slowed. They did not make payments for three months on Azar’s mortgage and the bank started threatening foreclosure. Kianoush, who had been struggling to keep up with the $4,700 mortgage payments for the new, temporary house, now had to begin helping her sister with her payments — especially after Azar was laid off from her job. Kianoush began working as a real estate agent. They tried for six months to sell either house, but couldn’t get even a single offer. In August, the family moved back to Azar’s house, and Kianoush focused on saving it from foreclosure. ‘I used my savings, I got help from friends, I sold all my jewelry,’ she said.”

‘Meanwhile, she stopped making payments on the house she had planned to flip, and soon received a notice of impending foreclosure from her mortgage lender. Now, she and her daughter live not only with Azar, but with three roommates that they took in to cover costs. The close quarters are particularly hard on Paris, who likes to have friends over. ‘When I remind her that somebody is sleeping in the other room or in the basement, she gets upset,’ Kianoush Etemadi said. ‘She says, This is my house! This is our house! Why shouldn’t I have fun on Friday night?’”

“Towns such as Sherborn and Concord are seeing large percentages of homes for sale being marked down, according to a new survey. The same is true for some of the hottest Boston neighborhoods in recent years, such as the South End, Charlestown, and Beacon Hill. In the current market, only sellers who have to sell, because of a job shift or change in personal circumstances, are putting their homes on the market, said Boston broker David Crowley.”

“‘The people selling now really have to sell,’ Crowley said. ‘It’s definitely different from a few years ago when people would put their house on the market and see what happens.’”

“Dr. Karyn Stern and her husband are looking in Concord. They’ve seen many homes that have been reduced in price, commonly to the $900,000s from more than $1 million. But in her view, those prices are still too high for some of the homes they have seen, many of which need extensive work and updates.”

“‘For $900,000 you are getting a little, tiny house that would be $200,000 anywhere else in the country,’ she said.”

“Timing often is the essential ingredient in any project, and Realtors and developers believe the timing is perfect to capitalize upon Toledo Bend Reservoir’s quietly growing popularity. A tall ridge with full lake view has been identified as a spot for a clubhouse and condominiums. Membership at Cypress Bend is being studied as part of the selling price of the lots. Waterfront lots will sell in the ’six figures,’ with prices yet to be determined. A waiting list for pre-sales is growing.”

“‘The interior and waterfront lots have gorgeous views. You can see Texas from most of the lots. And it’s just 10 minutes from Toledo Town, banks, groceries and restaurants,’ said Partner Virginia Burkett.”

“Springfield’s housing market has remained largely unaffected by market turbulence and could be heading for an upturn once the national market stabilizes, area Realtors say. ‘We’re not on the coast — we’re not Florida, we’re not California — where most of these speculative buys were,’ said Art Maxwell, sales manager of Coldwell-Banker Vanguard. ‘A lot of these speculative buys were secondary houses, not the buyer’s primary home. They were investment properties. And like most other investments, when it goes bad you dump it.’”

“‘People are hearing all of the national media saying it’s just desolate — that you can’t sell a house, you can’t give it away — and that’s just not true,’ said Murney Associates Realtor Rhonda Burks.”

“‘When homeowners must move out of a home…a growing number are choosing to rent [their home for sale] rather than continue reducing the price of the property until it sells,’ said Jim Merrion, regional director of the RE/MAX network in northern Illinois. ‘It is not a risk-free strategy. But if a seller thinks it is likely that home prices will rebound in the next year or two, it can be an effective way to deal with a difficult situation even if the monthly costs of continued ownership [mortgage, taxes and insurance] are more than the rent received.’”

“For example, assume a home purchased three years ago for $460,000 has a current market value of $410,000, and the homeowner’s monthly cost is $3,300. If the home can command just $2,200 a month in rent, the owner would have to pay $26,400 out of his or her own pocket over a 24-month rental period. However, if the homeowner believes the market will rebound so that the home will be worth at least $440,000 in two years, the out-of-pocket costs of renting can be recaptured when the home is sold.”

“Looking to offset rising expenses and otherwise cope with dreary economic times, those opening their homes to renters find in the process assistance in paying down a mortgage or keeping plusher lifestyles tenable, even if it means settling for a more cramped, less private existence.”

“‘It stands to reason that in an economic downturn you would see people resorting to a variety of strategies to try and make ends meet and sustain their lifestyles,’ said Michael Bernstein, provost at Tulane University, where he is also a professor of history and economics.”

“Bernstein said house sharing is commonplace in other parts of the country, where skyrocketing housing markets have long made such arrangements attractive. A former San Diego resident, Bernstein recalled residential sections of Southern California where he said it is not remarkable to find six cars in the driveway of a single-family home.”

“‘I would assume that if you look at any period of economic stress, you will see reconfiguration of living patterns along this way,’ he said.”

“The annual real estate forecast season is on, and Sacramento-area home builders caught a fresh earful of unfriendly predictions Thursday. Folsom building industry tracker Greg Paquin had these predictions: New home prices – averaging $374,000 across the region – are about as low as they can go. He said, ‘We feel we’re getting real close to the bottom in the Sacramento market.’”

“Economist Edward Leamer, director of the UCLA Anderson Forecast, said he sees not a typical V-shaped fast rebound this time, but a long bottom. ‘The news is all fear, fear fear. I call it the Paulson Panic,’ he said, criticizing the U.S. Treasury Secretary Henry Paulson, President Bush and Federal Reserve Chairman Ben Bernanke for badly frightening consumers with talk of economic collapse.”

“‘Business is booming,’ said Tabach-Bank, the CEO of Beverly Loan Co. in Beverly Hills, California. Beverly Loan is a pawnshop…that caters to people who hock Cartiers, Harley- Davidsons and Oscar statuettes when they need cash. They really need it now, Tabach-Bank said from a third-floor office, protected by bulletproof glass, off his showroom in the Bank of America building near Rodeo Drive.”

“‘I’ve never seen so many bankers, lawyers, doctors and actors’ with valuable things to pawn, he said. He pointed to an 18-carat white gold bracelet with 69 diamonds ($2,900) and an 18-carat yellow gold Rolex Yachtmaster II (’a steal’ at $18,500).”

“In downtown Los Angeles, King’s Jewelry & Loan began seeing luxury business pick up about 18 months ago when variable-rate mortgages started resetting to higher payments, said owner Sam Shocket. ‘We were seeing more Rolexes, Patek-Philippe watches, larger diamonds,’ said Shocket. ‘Instead of construction workers, we’d see major contractors,” Shocket said of his customers. ‘Instead of real estate agents, we’d see brokers. Instead of actors who played bit parts, we’d see someone you might recognize from ‘The Tonight Show.’”

“Delaware native Bill Parks opens Fox TV’s hit ‘Bones.’ Parks’ other recent big undertaking was buying a house in Los Angeles. It’s a three-bedroom, two-bath house with a guest house. He lives in the guest house and rents out the bigger house to cover the mortgage. ‘It was scary,’ he says. ‘But it was worth it.’”

“Now, he has not only his own house but, parked in the yard, a bus that’s temporarily home to ‘a couple of punk rock hippies.’ ‘I have this 45-foot, 72-passenger school bus. … It’s painted black all over, and it has a skull painted on one side. They’re waiting to convert it to biodiesel before they venture onto the road to finish their film, play music and do some tattoos.’”

“LibertyBank has sued the developer of the former Bend Trap Club property for more than $13 million, most of which was for loans made in April 2006 to purchase and develop the property. The former trap club property in southeast Bend had been approved for 220 homes, Bauhofer said. ‘By the time (the site) was completed (for homes), the market had collapsed,’ said (shareholder) Don Bauhofer. ‘There was a lot of development out there and a lot of us were building to precede sales. The value of the land dropped and the developers who were leveraged were not in the position to carry it.’”

“The median price of King County single-family homes sold in October was $392,000, down nearly 12 percent from October 2007, the listing service said. It was the largest percentage drop, year-over-year, since the market turned south two summers ago. Prices in King County haven’t dipped below $400,000 since February 2006.”

“With few exceptions, only those who absolutely must make a move now are in the market, said Kim Horn of the Horn Real Estate Group in Snoqualmie. ‘I’m working with eight sellers right now,’ Horn said, ‘None of them are selling because they want to.’”

“Falling home values have left nearly 52,000 mortgages in Minnesota in a negative-equity position, meaning the homeowner’s debt is greater than the estimated value of the property About 12 percent of the state’s mortgaged properties are ‘underwater.’”

“Walking away from a mortgage is an extreme response to being underwater that few homeowners likely would take, said said Tim Bendel, past president of the Minnesota Mortgage Association. ‘Psychologically, if you’re in a lot of financial trouble, and your house isn’t worth what you owe on it, you might feel like ‘Why should I go out of my way to make this work?’ said Bendel, who is president of a mortgage brokerage company in Prior Lake. ‘Hopefully, most won’t do that, because I think housing’s best days are still in front of it.’”

“Even though Arizona’s real estate recession feels painful today, it’s no worse than previous downturns. And the state will probably pull out of this one in the same ways it has done in the past, said Bill Gosnell, a Phoenix-based real estate investor, at a presentation Thursday night.”

“‘We are one of the top five overbuilt residential markets, which means we are becoming incredibly affordable again,’ he said. ‘We are also substantially overbuilt in office and industrial, and we are reaching similar vacancy rates as in the late 1980s. What brought us back in the 1990s was the cost of living came down because of housing, and the cost of doing business came down because of the vacancies.’”

“The same trends could help the Valley recover from its current malaise, he said. “I don’t want to sound overly optimistic. … It’s unfortunate for people who lost their houses. But the bottom line is that it is creating opportunities for others to buy these houses.’”