The Housing Bubble

The LA Times reports from California. “The number of Californians defaulting on their mortgage loans is rising rapidly, according to figures released Tuesday, providing striking evidence that more people are at risk of losing their homes. Default notices jumped 145% in the last three months of 2006, accelerating a trend that began in late 2005 as home sales started to cool.”

“It was the largest number of default notices in any three-month period since 1998.”

“James Brown, a retired insurance agent in Salinas, Calif., has a history of heart trouble. When he had an operation in 2005, he said, ‘the doctor gave me a 50-50 chance I’d die on the table. So I did a stupid thing: I refinanced the house.’”

“Brown’s goal in tapping his equity was to give his wife, Monica, a $100,000 cushion after his death. But he didn’t read the paperwork carefully, and didn’t realize that his monthly loan payment would skyrocket.”

“There was also a problem with the operation: It worked. A year or two earlier, that would have been nothing but good news. In the early part of the decade, Brown recalled, ‘property values went crazy.’ ‘People pulled up in Silicon Valley and went to Salinas, and paid here what they had been paying there,’ he said.”

“But Brown awoke to a different world. With the new loan, his payments went to $4,500 a month from $2,900. The $100,000 in equity he pulled out of the house went to his medical expenses and other bills.”

“The property has dropped in value to $750,000 from $899,000, leaving him without enough equity to refinance. He arranged to sell the place, but the prospective buyers couldn’t qualify for a mortgage. In September he gave up and stopped paying the mortgage. He’s now in default, speeding toward foreclosure.”

“‘Three times a week, they call and say, ‘Where’s my money?’ he said. ‘If I hadn’t survived, everything would have been fine.’”

“‘People are living on the edge, and they can’t help it with the price of houses,’ said Barbara Swist, a Costa Mesa mortgage broker who is helping Brown sort through his options. ‘They have good jobs but they bought over their heads, buying into the American dream.’”

The Press Enterprise. “There were 7,678 defaults filed against home and condominium owners in Riverside and San Bernardino counties in the fourth quarter, compared to 3,080 in the same quarter of 2005. Defaults have increased 181 percent in Riverside County and 140 percent in San Bernardino County. Riverside, Tulare and Merced counties were the most likely locations for defaults, Dataquick reported.”

“Homeowners in Inland Southern California and the Central Valley were the most at risk because of a concentration of first-time buyers who were forced to settle for mortgages with riskier terms.”

The Press Democrat. “Next month, the century-old Chauvet Hotel in Glen Ellen will reopen as ‘The Chauvet,’ a collection of six luxury condominiums currently priced from $1.15 million to $1.3 million.”

“Some wonder who’ll buy upscale condominiums in the heart of a tiny Wine Country village best known as the home of author Jack London. ‘Where are all these millionaires coming from?’ asked Sue Separk, walking her dog a block away.”

The Record.net. “The number of existing homes on the market has been plunging since summertime because of slow sales, and property managers now report a surge in the number of homes hitting the rental market.”

“Jerry Abbott, co-owner of Coldwell Banker Grupe in Stockton, said many sales-market dropouts are investors who couldn’t sell and now need some cash flow for mortgage payments.”

“Norbert Huston, a Stockton real estate broker who manages rentals, said he gets three calls per day from homeowners wanting him to rent out their properties, up from maybe three calls per week a year ago.”

“Diane Starr, owner of Starr Property Management in Stockton, said the rental housing market is tough now, with more houses for rent than there are potential renters. Demand starts plummeting for houses at the $1,300-per-month mark, she said.”

“During the housing boom, many renters became homeowners, she said, while nowadays, competition has jumped among rental-home owners for too few renters. ‘We traded one problem for another,’ Starr said.”

The Orange County Register. “Lennar Corp. is asking its homebuilding subcontractors to cut their current charges by 5 percent or more or face a minimum six-month ban on bidding for work, a company executive said.”

“The builder, one of the bigger developers in Orange County with plans to build up to 9,500 homes in the former El Toro Marine Base, began circulating letters and meeting with subcontractors earlier this month seeking cuts that reflect lower home prices, said Jeff Roos, Lennar’s Southwestern U.S. Regional Vice President.”

“‘As our customers continue to pay us a lower price for our homes, we must in turn pay you a lower price for your services,’ said a letter circulated to subcontractors in Lennar’s Orange Coast, Corona, Temecula and Palm Springs divisions.”

“‘Every builder is doing the same thing,’ added Roos, who works in Aliso Viejo. ‘Everybody understands that the market has softened.’”

“Some subcontractors said they’ve already cut their asking prices because the housing slowdown is leading to stiffer competition for work.”

“Shea Homes also is seeking cuts from subcontractors, said Michael Bobeczko of Sukut Construction, California’s largest earthmoving contractor, but hasn’t issued similar warnings about being excluded from future bidding. ‘The homebuilders are in a tough spot, so they’re doing everything they can to cut costs,’ said Bobeczko.”

The Sacramento Bee. “The home auction spectacle that began last year with impatient sellers aiming to cut their losses has expanded to home builders: The region’s first auction of new houses is scheduled for Feb. 3 in Elk Grove.”

“Irvine-based Standard Pacific Corp. will sell four model homes and two nearly finished houses to the high bidders at a live auction, company officials said Tuesday. Analysts say it marks the reappearance in California of a tactic employed by builders during the state’s 1990s housing bust.”

“‘This is a fast, efficient way for us to close out and complete the project,’ said Jackie Shipley, the firm’s VP of sales and marketing. ‘We feel like we’ve had a lot of success in that community. … It’s important for us to do this and move on.’”

“Minimum bids will range from $430,000 to $530,000 for the four- and five-bedroom houses in a new neighborhood near Elk Grove’s Franklin High School. The builder’s minimums are well below market highs reached during construction of the subdivision. Early last year resale versions of the smallest $430,000 price tag sold for up to $546,000 on the next street, according to Zillow.com.”

“‘It’s very difficult and expensive to draw traffic to those models to try and sell them, and we want to move our sales staff to Roseville,’ said Jon Nicholson, president of Standard Pacific’s Sacramento division.”

“The firm begins sales in Roseville next month for a 115-home project called Monet at Diamond Creek.”

“Carmichael-based West Coast Home Auctions, which will auction the houses in an Elk Grove hotel conference room, said the builder’s decision is an indicator of slow home sales in a market with more supply than demand.”

“‘When you’ve got some excess supply, this is another avenue for home builders to take,’ said Rick Baldonado, a building industry analyst.”

A housing report from the Baltimore Sun. “Ryan Conlon had a condo picked out. Nothing showy, but nice. Two bedrooms and a porch. No roommates, no landlords. The 29-year-old supervisor at Geico in Bowie was almost locked into the deal when he suddenly backed out. ‘The condo market is no good right now,’ he decided.”

“Instead, he and a friend took sanctuary at Annapolis’ newest luxury apartment complex, signing a one-year lease in December for a two-bedroom, two-bathroom unit with granite countertops, maple cabinets and stainless-steel appliances, for $1,900 a month.”

“‘For someone like me who makes decent money, I could afford a condo right now, but then I’d be house-poor,’ he said. ‘I plan on buying as soon as prices go down.’”

“People like Conlon are why the apartment market in the city is tight, despite a crush of new buildings and condos for lease by investors: Well-off Annapolitans are gobbling up high-end rental units, waiting for prices of single-family homes and condos to stabilize.”

“The average price per square foot jumped $10 to $380 last year, even as four new condo conversions entered the market, according to Delta Associates. The pace of condo sales in Annapolis slackened from nine units a month in 2005 to four in 2006.”

“‘I wouldn’t say that Annapolis is in dire straits, but the market would be doing better if there were fewer new projects,’ said William Rich, a vice president at Delta.”

“About 66 percent of Annapolis’ condos stood empty at the year’s end, according to Delta.”

“Condos are more vulnerable than single-family homes to price fluctuations because they attract investors who either flip them or rent them out, said associate broker Bill Hyland,. He tracks condo sales in Annapolis and supplies buyer information, and said the fluctuations in the Annapolis condo market have never been this pronounced.”

“‘For some people, it’s a good idea to buy right now. For others, it’s not,’ Hyland said. ‘Many of the listing prices were overextended to begin with, and most have dropped 20 percent in the past year.’”

“He and his wife are renting an Eastport condo that ‘we could nowhere near afford to buy.’ They intend to buy again once the market settles.”

“Single-family home sales in Annapolis fell off by almost half in 2006, down to 173 from 305, according to economist Joseph Cater. ‘We’ve come from a very long way in housing,’ Cater said. ‘Prices tend to ramp up very quickly and become sticky on the way down. The market is going to take time to readjust.’”

“A wave of conversions has added more than 700 apartments to the city’s inventory in less than two years, and the number of apartments has grown by about 20 percent, to almost 6,000, in the past six years, Cater said. Investors who couldn’t unload their condos because of market conditions have resorted to renting them.”

“New apartments in the area are trying to lure tenants with move-in specials and incentives. At West and Chinquapin Round roads, 1901 West is offering new tenants 1 1/2 months’ free rent. Down the road, Stone Point Apartments is handing out one month’s free rent.”

“A month after construction wrapped up, nearly 100 of 1901 West’s 300 apartments are leased. Jeramy Utara, a leasing consultant at Stone Point, which opened in the fall of 2005, said the building is 80 percent leased. Rents at both range from about $1,100 to $2,000.”

The Baltimore Messenger. ” Property taxes might be the death of Matthew Imhoff. The Mt. Washington resident’s triannual assessment shot up 110 percent, from $202,000 to $419,000, on a house that was appraised last year at about $350,000.”

“Imhoff joined 100 other Mt. Washington residents at an informational meeting Jan. 18, led by officials from the Baltimore City office of the Maryland Department of Assessments and Taxation. Many in the audience were angry at the gods of taxation.”

“The latest assessments are complicating lives in surprising ways. A man who wouldn’t give his name said his assessment doubled at a time when he is getting divorced, and he wants to buy out his wife’s half of their house. ‘I’m essentially screwed,’ he announced at the meeting.”

“Robert Cushner, a certified appraiser, whose job includes helping people appeal their assessments, said at least 20 percent of Mt. Washington residents might be eligible to appeal. The new assessments are more justified regionally than in Mt. Washington, where average sale prices for the city portion of ZIP code 21209 fell 12 percent from the third quarter of 2005 to the third quarter of 2006, he said.”

“Cushner said 21209 was one of four ZIP codes citywide where average sales prices fell during that time frame, including a 4 percent drop in 21218, which includes Guilford, Waverly and Oakenshawe. ‘That would be good evidence to make an appeal if you think you have been overassessed,’ Cushner said.”

“Fifth District City Councilwoman Rikki Spector said she believes lowering the rate is essential. ‘It’s killing us,’ Spector said. But to cut the rate, the city needs a bigger tax base, and too many properties in the city, including a high percentage of abandoned homes, don’t generate any tax revenue, she said.”

The News Press reports from Florida. “One Cape Coral homeowner left an auction sponsored by the Miloff Aubuchon Realty Group elated her home fetched a $400,000 bid. Then the bottom fell out. ‘The bid came over the Internet. They said there was a computer glitch,’ said Rosemarie Leibert. ‘They put it back on auction and the bid was $250,000.’ Leibert declined to take the bid.”

“‘One glitch out of 850 bids isn’t that bad,’ said Marty Higgenbotham, owner of Higgenbotham Auctioneers. ‘We said we’d like to have seller answers to the bids by Tuesday, but that doesn’t mean negotiations don’t continue. We probably won’t know the results until Friday or Saturday.’”

“At both days of the auction everyone spoken to said the bids came in too low and no one expected them to be accepted. Leibert was upset with the auction, calling it a ‘farce.’ She believes the bids were too low and the auction didn’t deliver serious bidders.”

“‘I think a lot of buyers thought they were going to bottom-feed. These are eager but not desperate sellers.’ Jeff Miloff said. ‘The auction tells me we are in a market correction.’ The bids were so unrealistic the auction showed people didn’t do their homework, Miloff said.”

The Herald Tribune. “The stalled real estate market turned Stoneybrook at Venice into a very different community than its residents paid for: a half-built subdivision dotted with slow-moving construction sites and ‘For Sale’ signs.”

“The latest news, that mega-developer Lennar will dump more than $6 million in costs on homeowners, has Stoneybrook residents crying foul and preparing a lawsuit. The residents believe Lennar is trying to make up for the fact it has sold less than half of the complex’s 998 homes.”

“Lennar contends it acted properly. But the meltdown between the developer and the homeowners is perhaps the starkest example of how Southwest Florida’s burst real estate bubble has bled on to private residents.”

“‘What it boils down to is they didn’t sell as many homes as they thought they could sell as quickly as they thought they were going to sell,’ said resident Gary Natiss, who heads a local homeowners group.”

“The residents’ grief came to a head Tuesday when the County Commission granted Lennar the ability to tax its residents for $6.6 million in infrastructure costs. The commission’s vote was 3-2 in favor of Lennar’s request. The tax will add more than $700 a year to some residents’ yearly payments.”

“Commissioner Jon Thaxton, who voted against the decision, chalked up the residents’ hand-wringing to the real estate market boom of 2004 and 2005, a time when ‘we had a lot of anxious purchasers and a lot of anxious sales people that were processing disclosures at light speed.’”

“The decision, coupled with Lennar recent increase in some homeowner’s dues by $200 a year, another move residents say wasn’t properly announced, has a group of more than 150 Stoneybrook residents ready to take Lennar to court.”

“During Tuesday’s meeting, Stoneybrook residents loudly applauded a speech by Natiss, in which Natiss threatened a lawsuit and said the ‘only thing Lennar could be building in this county are license plates while they are wearing their little orange uniforms.’”

“Sales took a dive at Stoneybrook when the real estate market tanked across the region. Today, the complex is about 43 percent sold, which county staff said is less than two-thirds as far along as Lennar hoped. County staff said Lennar will fall almost $8 million short of its revenue goals for its first two years if the sales trend keeps up.”

“Indeed, Stoneybrook is only 54 percent built, and at mid-day is nearly as quiet as the nearby Carlton Reserve.”

“Signs along North Port’s Toledo Blade Boulevard reflect the downturn in the housing market. Builders have turned to touting affordability and hurricane protection, among other things, in their advertising.”

“Some billboards and signs seen at model home sites on Toledo Blade: ‘$139,900,’ ‘$150,000s,’ ‘Homes for Working Families,’ ‘Withstands Category 5,’ And the ever-present ‘Spec Homes Available.’”

The Sun Sentinel. “If you think you’re paying more to live in your condo, townhouse or gated community, consider this: It may get worse before it gets better.”

“Experts fear that with homes selling slowly, owners who can no longer afford payments may soon abandon them. If that happens, those left behind in communities run by associations must make up the missing share of money to maintain roofs, roads, landscaping and pools.”

“‘We’re seeing a 100 percent increase in the number of files turned over to us [by associations] for lien and foreclosure,’ said Gary Poliakoff, whose Fort Lauderdale-based law firm represents 4,200 associations in Florida.”

“In Broward County, his firm has more than 900 active collection files. The Palm Beach County office has 200 active cases.”

“An association’s expenses are constant, so budgets are based on the community’s number of homes and apartments. ‘Other owners have to make up the shortfall because service providers aren’t going to say, `We feel sorry for you and will reduce the cost,’ said Poliakoff.”

“He said a similar situation existed in the late 1970s and early 1980s and ‘it took two or three years for the market to absorb all units.’”

“Another contributing factor to the foreclosure problem is creative financing. ‘A significant number of first-time condo buyers acquired them during the boom of the last decade by financing 90 percent or 100 percent and [using] adjustable-rate mortgages,’ Poliakoff said.”

“Attorney Bill Carneal explained that as interest rates rise, those buyers are ‘having to refinance or get rid of their property.’”

“Poliakoff encourages associations to foreclose as a way to beat out lenders. If a bank assumes title to a condo in a foreclosure, the association likely will lose six months of maintenance, money that everyone else will have to make up.”

“By beating the bank to the punch, associations can at least get some income by renting the unit, collection foreclosure specialist Adrian Marchisio said. Then, when the market corrects itself, the unit can be sold.”

The Charlotte Observer reports from North Carolina. “The coastal housing boom of the past few years has come to a screeching halt. In Myrtle Beach, new and existing condo sales dropped 37 percent in the third quarter from a year earlier, according to Market Opportunity Research Enterprises.”

“In Wilmington, a less condo-driven market, existing home sales fell 17 percent in the same July-to-September period, according to the N.C. Association of Realtors. Nearby Brunswick County, home to miles of beach towns, saw a 64 percent drop, while there was a 30 percent drop in sales on the Outer Banks.”

“‘There is going to be a huge number of units on the market next year, and lots of them vacant,’ said Carl Van Horn of Market Opportunity Research.”

“There are about 10,000 condos on the market along South Carolina’s Grand Strand, several thousand more than a year ago, according to Tom Maeser, a real estate marketing analyst in Myrtle Beach.”

“Van Horn said that many of the buyers of coastal property in the past two years have been speculators or investors who purchase a property with the intention of selling it for more in the near term. Continued drop in demand could leave them, as well as developers, with unsold inventory and no cash to pay back their loans.”

“In the Myrtle Beach area, Tidelands Bank now has 90 percent of its total portfolio in residential and commercial real estate. ‘If the downturn in housing continues, there will be banks out there under stress because developers can’t turn enough inventory to service their debt,’ said Tony Plath, a professor of finance at UNC-Charlotte.”

“‘We’ve already seen developers in other parts of the country falter,’ said Plath. ‘We’re definitely going to go through a period of nail biting.’”

The Sun News from South Carolina. “Homeowners, reacting to a slowing real estate market, are remodeling their homes instead of moving into new ones, according to a survey. ‘If I sell my house and want to move up to at least something as good, it’s going to cost me as much if not more, so I’m better off remodeling my home,’ said Tom Maeser, market analyst.”

“Indeed, many Strand builders are reopening the remodeling segment of their business - which they may have closed during the building boom of the past several years, Maeser said.”

“‘With housing prices falling and interest rates higher than they were a few years ago, homeowners are still remodeling, but with an emphasis on managing costs,’ said Dan Fritschen, author of the national survey.”

The Athens Banner Herald from Georgia. “Is Athens overbuilt? If Athens-Clarke County’s housing growth continues on the same course it has followed for the past several years, a housing surplus will continue, county planners said.”

“Builders in Athens-Clarke County appear to be getting way ahead of the county’s population in terms of housing needs, according to projected figures compiled by the Athens-Clarke County Planning Department.”

“In 2005, the county issued permits for 3,993 more housing units than population projections indicated were needed, according to statistics available in the community assessment section of the 2008 Athens-Clarke County comprehensive plan.”

“‘There was a housing surplus of about 2,000 units just in single-family permits for 2005,’ said county Planning Director Brad Griffin. ‘There (currently) is a lot of (housing) product on the ground that’s empty, new and used.’”

“The housing disparity is predicted to grow even larger in 2010 where permits for housing will exceed need by 7,834 units, based on permitting and population trends.”

“For District 8 Commissioner States McCarter, there is no question about whether Athens is overbuilt. ‘We have a surplus now. At any given time there, are 20-something houses for sale in Cedar Creek,’ McCarter said.”

“Sean Hogan, president of the Athens Area Homebuilders Association, says he doesn’t think Athens is overbuilt, but he acknowledged that any market will bear periods of surplus regarding certain types of housing. He cited the proliferation of condominiums, largely marketed to students, as a building factor that has affected the apartment market to some extent.”

“Hogan adds that the building industry is a self-regulating type of business and that the community and region continues growing. ‘(Builders) won’t continue putting sticks and bricks together when the market is not there for it,’ Hogan said.”

“Real estate broker Steve Sgarlato, who has worked in the profession for 11 years, said the townhouse project is a perfect example of overbuilding in Athens. ‘You can drive around and see these phase-two projects, like that stuff on Whitehall, just sitting there with grass growing,’ Sgarlato said. ‘Some people are figuring out they can’t rent or sell what they’re building, so they stopped building.’”

“What has hurt, said Athens Apartment Association president Ernie Smallman, is that in order to compete with the ‘kiddie condos,’ many apartment properties responded by lowering rents. ‘Our rent levels are not what they were four years ago,’ Smallman said. ‘Our margins are much lower.’”

“UGA economist Jeff Humphreys said the Athens market, at least for single-family homes, is only temporarily overbuilt and that economically, that could mean home prices might decline in the market. In the past five years, home values have risen by 29 percent, somewhat higher than the 28 percent statewide and 24 percent in Atlanta, Humphreys said. The national increase was by 56 percent.”

“‘The market is telling us that Athens is no more or less overbuilt than the rest of the state,’ he said.”

The Savannah Morning News from Georgia. “I was surprised to hear from so many people after my recent column about the limited options in the local housing market for middle-income buyers. Most readers appreciated the fact that I raised the issue, but several let me know that the reality was even more difficult than I described.”

“Here and there one can find evidence of a market correction. One reader pointed to a house, an actual house, not a condo, in the Historic District that has been reduced in price by $76,000 (almost 20 percent) in recent months.”

“Elsewhere, out near Bull and 37th streets, a building that was listed as a condominium complex is now being marketed as rental apartments.”

“Now, none of this means that the local housing market is crashing. But it appears that something has to give. Either prices have to come down, or wages have to go up, or a hoard of wealthy folks from somewhere else suddenly have to enter the market.”

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