The Housing Bubble

The Nevada Appeal. “Carson City’s housing market has worked against Donaldo Palaroan. He bought his Silver Oak subdivision home in 2004, when every other California refugee was trying to get in, which fired up the market. Palaroan tried to sell in 2006, the year the bubble burst.”

“He and his wife had wanted to upgrade to a bigger home. Now it’s a dream deferred. ‘We backed out of the idea of moving into another home until this one sells,’ he said.”

“They’ve had their Taylor Way home listed on For Sale By Owner.com for $464,900, which they’ve reduced by $10,000 since October. They bought it for $347,000 in 2004; prior to that it was flipped by two other owners within four years, according to assessor records.”

“‘I think (prices) are pretty close to bottoming out,’ said broker/associate John Vettel. ‘Everybody knows a sustained rate like that can’t continue. Already we’ve had indications that the market is receding.’”

“The average price in 2006 of $345,200 may seem high, but there were many properties priced much higher than that, and those are the ones that languished on the market.”

The Santa Cruz Sentinel. “Two lenders specializing in ’subprime’ mortgages that made loans in Santa Cruz County have shut down, and a third stopped taking applications Wednesday, signs of trouble in the industry.”

“Ownit Mortgage Solutions, of Agoura Hills shut down Dec. 5 and filed for bankruptcy Dec. 28. Mortgage Lenders Network USA of Middletown, Conn., which was issued a cease and desist order Jan. 24 by Connecticut banking officials.”

“Mandalay Mortgage of Woodland, which notified customers Jan. 24 with an online announcement that it would no longer accept applications. All three did business in Santa Cruz County.”

“Ownit made about 200 loans locally over the past three years, according to the Santa Cruz County Recorder’s Office. Ownit was known for 100 percent financing. Bankruptcy records indicated Ownit had millions in loans where borrowers missed payments within the first four months.”

“Santa Cruz mortgage broker Jim Chubb said he knew the local Ownit representative, a Prunedale man who lost his job in December and was owed $12,000 in commissions. ‘His life’s crumbled,’ Chubb said.”

“Chubb attributed the company’s problems to mortgage agents making overly competitive loans. ‘I think they didn’t do enough to verify borrower cash flow,’ he said. ‘They abused the guidelines and lenders allowed it’”

“‘When you look at the fact that one out of 10 sub-prime loans are currently in default, what is that telling you?’ said Vickie Thivierge, a lending industry veteran in San Jose. ‘It basically says we are in for some changes.’”

The Press Enterprise. “Zillow and sites like it ar satisfying people’s obsession with housing prices and their curiosity about just what their friends and acquaintances paid for their property.”

“Realtor Mindy Zink warns homeowners not to put too much stock in Zillow. It is not accurate, she said, and is merely designed to generate revenue by selling advertising to real estate agents. The site’s overvaluations are harmful to home sellers, making them think their property is worth more, Zink said.”

“‘If people that are nearing foreclosure actually buy into it (and) list it too high, they may actually go into foreclosure when the property could have sold earlier and saved them money and heartache,’ she said.”

“Zink had one client whose home was listed at $320,000 on Zillow. But based on comparable sales, it was worth about $230,000, she said.”

“‘It has not sold after three months, listed at $230,000, many open houses, advertisements and probably 30 showings,’ she said. ‘If I had put it anywhere near what Zillow stated, it would not have gotten the showings it had.’”

“Riverside real estate agent Dan Sewell uses Zillow as a reference point for pricing every property he handles. But the recent shift from a seller’s market to a buyer’s market skewed zestimates, placing prices too high for the glut of available inventory that has forced sellers to price homes more competitively, he said.”

“Moreno Valley appraiser Dave Whipple used Zillow once out of curiosity, plugging in the address of a home in Perris that he was going to evaluate. The estimated value on Zillow was $383,000, even though the highest comparable property was $287,000, he said.”

“Kevin Myrick, whose 3,430-square-foot house in Menifee is estimated at $636,588 on Zillow, is a Zillow loyalist, however. When an appraiser valued his house at $75,000 less than the zestimate, he was so outraged that he withdrew a loan application. ‘I trust Zillow more than I do the appraisers,’ he said.”

The Rocky Mountain News reports from Colorado. “Developer Keith Simon tosses out terms like ‘urban,’ ‘edgy,’ and ‘high-density,’ about his fledgling $200 million mixed-use community. ‘Imagine if you took Larimer Square and built it here, in the heart of suburbia,’ Simon said, while driving to the site, where the ground was still thawing from the latest barrage of snowstorms.”

“‘Commonwealth Heights will be much more urban and much more dense than we are used to seeing in the suburbs,’ Simon said.”

“The new 20-acre Commonwealth Heights will have energy efficient homes, all sporting fiber-optic cables from Qwest. ‘We require every home in RidgeGate (and there eventually will be as many as 12,000) to be Green Built,’ said Simon. He said the Qwest deal will ‘future proof,’ the homes technologically.”

“‘One thing about New Urbanism-communities as they always talk about walkability, but often there is no place to walk to,’ said Kevin Puccio, project manager for New Town Builders. ‘The great thing about RidgeGate, is there are a lot of place to walk to,’ he said.”

“Housing consultant S. Robert August said he thinks Commonwealth Heights needs neighborhood retail, such as bakeries, dry cleaning, coffee shops, a book store and specialty retail. ‘Also, I know that there is a movie theater at Park Meadows, but I don’t think it will be too long before they sign a deal to bring a new theater to RidgeGate,’ August said.”

“Simon said that he would like that, but is thinking a new theater should have an urban twist. ‘We might consider a theater that shows more art films,’ Simon said.”

The Billings Gazette reports from Montana. “Two long-vacant commercial buildings in the heart of downtown Billings are about to be reborn as living space, adding 21 loft apartments and condominiums to the downtown housing scene.”

“Despite a few setbacks, more than 100 apartments, condos and extended-stay suites have been built, with three-fourths of them occupied, purchased or spoken for. At least another 50 are on the drawing board.”

“Architect Randy Hafer, who has been involved as a developer, investor or designer on many of the ventures, and he helped build two new condominium complexes. ‘That’s why we have to keep doing projects, because we learn something every time,’ he said.”

“Two of Hafer’s condominium developments are having trouble attracting buyers. A project on which Hafer was the architect, a little west of the heart of downtown, did well as apartments but attracted no buyers when the attempt was made to convert the units to condos.”

“Howard Sumner, a real estate agent who closely watches trends in the local housing market, said there seems to be a steady but not particularly large demand for condominiums in the downtown area. ‘I have found in the Billings housing market, it can be very dangerous to be avant-garde,’ he said.”

“There hasn’t been much activity in the condo and townhouse market in the downtown proper, he said. Sumner counted nine such sales that have closed since the start of 2005, eight pending sales and 10 still on the market as of last week. The way Sumner sees it, that means the number of condos and townhouses for sale in the downtown area represents about a two-year supply at present levels of demand.”

“Every downtown project seems to have its own headaches. In terms of construction and permitting, the Oliver has probably been his smoothest project yet, Hafer said, but he’s having trouble attracting commercial tenants to his basement, ground floor and second floor.”

“‘It’s been very curious why that hasn’t moved,’ he said. ‘I just don’t know why.’”

“Attorney Tom Towe, Hafer and the other partners in the Skyline Court project still plan to build 44 of the three-story condos, but the five completed units remain vacant after more than a year on the market. Buyers now have lease options on two of the units, but one is hung up while awaiting a City Council decision on a zone change that would allow a small, home-based business in the condo.”

“Realtor Susan Lovely, who has been marketing the units, said the location seems to be the main problem with Skyline Court. She said there are ‘a lot of seedy-looking characters wandering around there,’ and the five completed condos look out on the blank back wall of the Albertsons.”

“Sumner said the allure has not been helped by the chain-link fence surrounding the neglected lot behind the condos.”

“Hafer doesn’t share their views. He said the problem with Skyline Court has been that he and his partners haven’t been able, yet, to offer what they have advertised. ‘It’s designed to be inward-focused, but we don’t have any ‘inward’ yet,’ he said.”

“Hafer said he’s facing similar problems at SoNoMa. He built four new condominiums there and bought an adjoining apartment building that eventually will be converted to condos. But he needs to sell at least two of the new units to obtain financing to begin the conversion of the apartment building. The condos have been on the market since last summer, but none has sold.”

“Jeff Kanning, with Collaborative Design Architects, wasn’t sure why he has had difficulties with the five units he built at 18 Grand Ave. The urban-style condos feature five two-story units with 960 square feet, plus a 300-square-foot basement. He has managed to sell two of the units, but he got tired of waiting for the other three to sell and has begun renting them out. Two are occupied.”

“Hafer said some of the objections people have to living downtown are similar to those that have kept people from trying out his SoNoMa condos on the South Side. ‘Once they get there they’re going to find out there’s no big problem,’ he said. ‘But we’ve got to get them there.’”

The Monroe News reports from Michigan. “Foreclosures in Monroe County soared 64 percent during 2006. The number of sheriff’s deeds climbed to 498, up from 303 during 2005, according to the Monroe County Register of Deeds office. It means about one in every 94 owner-occupied homes in Monroe County went into foreclosure during 2006.”

“Spending beyond their means is oftentimes part of the equation, meaning when times were good people spent every penny they had and there’s not much savings,’ said Thomas G. Myers, chief lending manager at Monroe Bank & Trust. He said the stereotypical belief that overspending causes foreclosures isn’t always the main reason.”

“‘There’s no doubt there are some people who have recklessly gone and spent above their means, but there are a lot of people who haven’t done anything wrong and it has turned around and slapped them in the face,’ said Arlene Walsh, mortgage office with LaSalle Bank’s Home Lending Center in Monroe.”

“If there’s a silver lining behind the numbers, it’s in the pockets of the people who are getting deals on foreclosed homes. ‘That part of the story is pretty good because usually if it’s owned by a bank or some type of lending institution, they are asking a rock bottom price to move the house,’ Ms. Walsh said. ‘You’re going to get fairly good deals on any home that’s in foreclosure, just due to the sheer number of them now.’”

“To add some perspective, about 1,260 homes sold in Monroe County last year, just over twice the number foreclosed.”

“Ms. Walsh also said in response to the foreclosure rate, some lenders are tightening up loan policies, looking at credit scores and income-to-debt ratios much more closely. ‘If people want a competitive rate, they have to be following guidelines that are much stricter than they were five years ago,’ she said.”

The Indianapolis Star. “In a sense, though a very qualified sense, Central Indiana has been a victim of its own success when it comes to home mortgage foreclosures. Historically a leader both in the rate of homeownership and the frequency of reliance upon federally insured loans for buyers of modest income, the region also finds itself among the front-runners on the downside.”

“Metropolitan Indianapolis dropped from first place to third place nationally in foreclosure rates last year but had nothing to celebrate. Lenders took back 48,000 homes, up nearly 36 percent over 2005.”

“Who’s at fault? Who isn’t? Illegal loan scams that have made the headlines in recent months and led to multiple arrests certainly have cut a swath of blight as phantom financing led to abandonment and foreclosure. However, far greater loss results from widespread activity that defies no law but too often defies good sense.”

“Joel Epstein, president of the Greater Indianapolis Mortgage Bankers Association, cites a nationwide push ‘to create a culture of homeownership’ which has led to excess as well as success. ‘Did we as a lending industry and a real estate industry, in trying to get people into houses, maybe go too far in some cases? I would say yes. Were some people given the wrong kinds of loans? Yes. Were some people not ready to be in homes? Yes. Was the economy at fault? Yes.’”

The Journal Sentinel from Wisconsin. “Brenda Boyce is frustrated. Her tax bill assumes her house is worth thousands of dollars more than anybody seems willing to pay.”

“‘Our townhouse in Wauwatosa, on the market for eight months, was reassessed at $391,000 last summer,’ Boyce said. ‘Our asking price, after being lowered twice, is now $349,900 and still we have not received any legitimate offers. Assessments are completely out of whack with values.’”

“Boom conditions ended abruptly last year, sapping value from many properties. Yet the latest crop of tax bills is based on assessed value as of Jan. 1, 2006 - which may have been the finale of the 2000-’05 housing price run-up.”

“Homeowners trying to sell are hard-hit when assessments collide with harsh market realities. ‘After trending up, trending up, for five years straight, suddenly we reached the top and now we’re cresting down a little,’ said Steve Stiloski, president of the Appraisal Institute’s Wisconsin chapter.”

“Some local assessors, especially those who rely on mass valuations of residential properties, ‘may be overshooting’ housing values, Stiloski said.”

“House values rose an average of 10% in 2005, the boom’s peak, according to the state Department of Revenue. It’s likely, said Dale Knapp, research director of Wisconsin Taxpayers Alliance, that the downturn left some overvalued housing in its wake.”

“Milwaukeean Jim Gehl puts himself in the unhappy camp of those whose homes wound up overvalued and are paying more than their fair share this year. He and his wife, Kim, are selling their 2-year-old east side condo, asking price $249,900, because of a job transfer.”

“Despite no offers in six months, Gehl said, ‘I’m in no mood to sell for a lower value than I paid, especially after paying taxes from a city that says my assessment is $12,000 higher than what I purchased it for. The city needs to look at the real value of properties.’”

The Philadelphia Inquirer reports from Pennsylvania. “A few projects may have been canceled or, in the words of some developers, ‘repurposed.’ But it seems that the condo-sales market in Center City fared better during the 2006 real estate slowdown than markets did in Washington, New York, Boston, Miami and Las Vegas, according to economists, developers and local real estate agents.”

“Among the projects canceled last year were Marina View Towers on the Delaware River and a 57-story condo tower at 15th and Chestnut Streets. In December, South Bridge closed its sales office and returned deposits. The developer declined to comment on new plans for the building ‘until after zoning,’ spokesman Mike Lizun said. Reports are that the gutted building could become luxury rentals.”

“Center City condo conversions the last couple of years have taken 1,500 apartments off the market, not including the two Reinhold projects.”

“Sales at the Residences at Dockside, which went condo in early 2006, have been slower than anticipated. Still, said Donna Bartynski, COO of Dockside’s developer, ‘we remain highly confident in our decision to convert Dockside to condominiums.’”

“By one estimate, 42 projects and 15,000 new condo units were proposed for Center City three years ago. The new reality suggests that 1,000 units will be added each year between 2007 and 2012.”

“‘Fortunately for Philadelphia, we did not start many projects and, therefore, do not have to make the decision to switch to rental,’ said Allan Domb, a veteran player in condo sales and development here. ‘The benefit of not starting many of our projects will help tighten the market eventually and cause us to probably have the softest landing of many major markets.’”

The Morning Call from Pennsylvania. “Kevin and Jen Graney liked the spacious house on a half-acre in Bethlehem Township, but not the $500,000 asking price. So they offered $30,000 less than the list price, and last month, the seller accepted.”

“The Graneys’ experience reflects a shift in the housing market in 2006. Home buyers regained a flexibility to negotiate that had been lost in the boom years of 2004 and 2005. The seller gladly accepted the offer of $470,000 because the home had been on the market for more than a year. Other offers, including one for $525,000, had fallen through.”

“‘People are thinking twice about how much more properties can appreciate in value,’ said Stephen Thode, at Lehigh University. ‘Rather than committing to that jumbo mortgage on the bigger home, they are saying, ‘I think I will stay put for a while.’”

“The slowing pace stemmed partly from the large number of homes offered for sale. New listings outpaced home sales by nearly two to one last year. The local housing stock has swelled, with the construction of dozens of new subdivisions in the last 10 years. The bigger supply of available houses allowed buyers to be more selective, which in some cases depressed prices.”

“Real estate agents in the Valley spent much of 2006 trying to convince sellers that the market had shifted in favor of buyers. Many say sellers still wanted to set asking prices that were too high for the market.”

“‘I worked with quite a few sellers who did not really care that people were saying the market was sliding,’ said Ellen Shaughnessy, an agent in Easton. ‘They still wanted to price their homes at a premium despite what was starting to happen. Some of those [homes] are still there.’”

“At the same time, real estate agents say many buyers have falsely assumed the market is in free fall, and have submitted offers that grossly undercut asking prices.”

“Real estate agent Loren Keim said his Allentown firm put five properties priced at $500,000 on the market at the end of the year. All the properties received offers between $350,000 and $360,000, or 30 percent less than listing prices. Virtually no seller is going to accept an offer so low.”

“Typically, homes in the Lehigh Valley appreciate about 5 percent a year. But since 2000, average prices have soared a total of 80 percent.”

“New homes have been a big draw for people moving here from New York and New Jersey. The average price of a new home surpassed $400,000 for all but two months last year. ‘You will have this natural momentum toward higher-priced homes because there is more of that inventory as a percentage of the total market,’ Thode said.”

“Real estate agents say, for example, that homes priced at less than $200,000 continued to sell quickly. The same can’t be said of the higher-priced homes on the market. ‘Over $300,000, it is really slow,’ said (broker) Jack Gross in Bethlehem. ‘Things are not flying off the shelves.’”

“In the previously hot Palisades school district in Upper Bucks County, home prices fell 12 percent last year to $465,812, and the number of homes sold dropped 25 percent.”

“Keim said people are hesitating before buying because they don’t want to get caught in a falling market. But he said it’s a misconception that the market is falling. ‘I don’t see a drastic drop-off in the market,’ said Keim.”

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