The Housing Bubble

The Review Journal reports from Nevada. “John Riordan doesn’t like to use the term ‘bottom out,’ so he’s saying the high-rise luxury condo market in Las Vegas is turning around. Riordan said the buyer demographics at Turnberry Towers are similar to those at Turnberry Place, the four-tower, 780-unit condo community that Turnberry built on Paradise Road. They’re mostly from Southern California and second-home buyers.”

“‘It’s a much younger buyer,’ he said. ‘The market’s much broader. When we first started, the average age was early 60s. Now I’d say the average age is mid-40s. Obviously, when you have a lower age, you’ve got more people, a lot of baby boomers.’”

“Not only has the market turned back up, but buyers are more serious and qualified and they’re here to buy, Riordan said. ‘Our typical buyer is an entrepreneurial person who typically tends to be ahead of the market as far as understanding real estate and getting ahead of the curve,’ he said.”

The LA Times reports on Las Vegas. “In a morphing city where hotels and casinos are built and razed and built again, a massive new development seeks to make a lasting mark on the city’s skyline. Project CityCenter, MGM Mirage’s 76 acres of densely packed condos and hotels may finally put Las Vegas on the architectural map and usher in a cosmopolitan reincarnation of the town better known for kitsch and over-the-top theming.”

“‘This takes the Las Vegas evolution to the next level,’ said Terry Jicinsky, vice president of marketing for the Las Vegas Convention and Visitors Authority.”

“After just two weeks on the market, 90% of the condominium units in one of the project’s condo-hotels have been sold, with prices starting at $1.5 million. ‘People think we’re out there on a curve, but to be original and to be smart is better than to be faux,’ said Tony Dennis, executive vice president of CityCenter’s residential division.”

“Unlike the rest of the Strip, where hiking from one casino to another can be a workout, density at Project CityCenter will rival that of Manhattan. Project CityCenter is just one in the wave of proposals to hit Las Vegas. In all, about 70,000 condo and condo-hotel units are planned and 10,740 are under construction.”

“So far, the market has been unpredictable. Thirteen projects have been canceled or suspended in the last few years, said Brian Gordon, a principal at a Las Vegas-based economic and real estate research firm. ‘We’re facing an imbalance between supply and demand,’ Gordon said.”

“More than 1,350 people have also made reservations for the Vdara Condo Hotel and Veer Towers by putting down as much as $15,000. Jason Fox, a 26-year-old mortgage broker in Las Vegas, has already made a reservation to buy a condo at Veer Towers, even though it doesn’t go on sale until April.”

“‘I’m definitely buying one,’ Fox said. ‘I’m going to get the largest unit they have in the highest floor. I’m always on the phone with the saleslady trying to hook it up.’”

“Fox said he wasn’t scared off by traffic scenarios that show an additional 2.3 new cars for every new room. As it is, getting from one end of the Strip to another can be a bumper-to-bumper, time-wasting endeavor, considering that regional transportation officials estimated that Las Vegas Boulevard reached its auto capacity in the mid-1990s.”

“‘Traffic will be a nightmare, but I’m all about living there,’ Fox said. ‘I like to go out and have fun on the weekends. If I’m going to party down on the Strip, I don’t want to get drunk and get a DUI.’”

“A $7 cab fare will get him anywhere on the Strip, compared with $50 for a trip to the suburbs, Fox said.”

“Although he thinks many projects won’t materialize, he expects the value of the ones that do to accelerate quickly. ‘I am very excited about the Manhattanization of Las Vegas,’ Fox said.”

“The architecture world is taking notice of the headlining designers, including Daniel Libeskind. ‘This will change the notion that Las Vegas is just a place to shop, go to a hotel and be entertained,’ Libeskind said. ‘I think it’s really going to become a metropolis, a city. It’s no longer just an illusion or a nostalgia.’”

The US News and World Report looks at Colorado. “In pursuing the American dream, Hector Garcia figured he was doing everything right. He bought his first house 4 1/2 years ago in Denver’s Montbello neighborhood. Garcia took out a 30-year, fixed-rate mortgage at 6.5 percent interest, bought a three-bedroom home for $207,000, and began fixing it up.”

“But two years ago, interest rates reversed course, sales slowed, and developers began discounting the homes they’d built nearby. Buyers with adjustable-rate loans saw their monthly payments rise. Some fell behind and were forced to sell or face foreclosure.”

“The worst result is the sort of vicious cycle of ‘for sale’ signs, foreclosures, then more ‘for sale’ signs that is all but devastating Montbello. Bank-owned properties now represent more than 80 percent of all homes on the market there, putting even seemingly stable homeowners like Garcia up against a financial wall.”

“‘I just can’t take it anymore,’ he says of his street’s overgrown yards, abandoned houses, and declining property values. ‘I put so much into this house and this community, but I don’t have no equity.’”

“Garcia’s house two years ago ‘would have gone for $210,000, maybe more,’ says David Cabrera, the real-estate agent whom Garcia hired last fall to sell the home, now priced at $195,500. ‘But nobody’s buying now with all the foreclosures.’”

“Denver City Council President Michael Hancock Hancock is considering a ’second chance’ program in which an investor group would buy foreclosed properties in bulk, rent them back, and eventually sell them to those who have been foreclosed on.”

“Some worry, however, that such a plan would only set folks up for another fall. ‘Homeownership has been sold to many people as the equivalent of a Powerball ticket,’ says Jacky Morales-Ferrand, who directs the city’s housing development division. ‘But the truth is that not everyone can afford a home when the roof needs to be fixed or the plumbing breaks. Most of us won’t win that Powerball ticket.’”

“Some expect things to turn around eventually. That’s not likely to be soon enough for Garcia, who has yet to receive an offer. ‘”I feel bad,’ he says. ‘Everyone thinks they want to get a house to get money for the family. But I need to have a life, too.’”

A report from from the Arizona Republic. “Regulators have shut down Mesa-based Eagle First Mortgage and its more than 75 Valley branches, citing illegal lending practices. The Arizona Department of Financial Institutions pulled the license of the mortgage firm and its broker, David Sanchez, last week. Regulators described more than 100 illegal money transactions, loan activities and hiring practices.”

“A wave of mortgage fraud started spreading across the Valley last year that could cost lenders millions of dollars and erode values and confidence in Arizona’s real estate market and economy.”

“Most of the fraud is coming from cash-back deals that involve obtaining a mortgage for more than a home is worth and pocketing the extra money. But there are other types of fraud such as faking and forging documents and lying about income and other personal information for loans.”

“Chris Mozilo, president of the Arizona Mortgage Lenders Association, could not comment on the Eagle First case because he did not know the details. But he said the Department of Financial Institutions is doing a good job with limited resources ‘cleaning out the bad actors’ in the mortgage business.”

“As part of the department’s investigation, Eagle First agreed last month not to take on new business. A statement on the firm’s Web site, last updated in January, said nothing of its closing. The site says, ‘We successfully finance 98 percent of our applicants.’”

“A consent order from the Arizona Department of Financial Institutions cites reasons for shutting down Eagle First including: It made almost $2.5 million in payments to unlicensed mortgage firms and contractors that were owned by its own branch managers, which is against the rules for licensed mortgage brokerages.”

“For example, it paid $418,646 to CM Vermex mortgage owned by the manager of one of its branches and $373,100 to Casa Latino Mortgage owned by the manager of another branch.”

“A $19,000 payment was made to an employee of Scottsdale Title, but there was no invoice for it. Employees were paid as both real estate agents and mortgage brokers without disclosing their dual roles and multiple commissions.”

“Failed to check to see if 95 employees had felony convictions. Such a check is required by licensed mortgage brokers. The brokerage let borrowers sign documents when key information and disclosures were blank.”

“A false statement or misrepresentation was made. For example, a manager of an Eagle First branch took a loan application last February that listed the borrower’s monthly salary at $2,860. A month later, she took another loan application from the same person and listed the salary at $4,959.”

A report from the Courier Journal. “The number of Kentuckians buying homes reached an all-time high last year. But some of those buyers are having trouble keeping up with the payments. One in every 57 residential mortgages across Kentucky, nearly 2 percent, was in foreclosure last summer, according to the national Mortgage Bankers Association.”

“In Indiana, the rate was nearly 3 percent, putting it second in the nation behind Ohio. Kentucky was fifth, behind Michigan and Katrina-ravaged Mississippi.”

“In Louisville, there’s been a flurry of foreclosure sales, Jefferson Circuit Court ordered a record-tying 2,620 sales last year and is on a pace to set an all-time high this year. ‘We are scheduling 125 parcels every other Tuesday for 2007,’ said Daniel T. Albers Sr., master commissioner for Jefferson Circuit Court. ‘If this holds for the year, we will schedule 3,125 parcels this year.’”

“Lenders don’t want to ’set people up to fail,’ said Chris Evans, president of the Mortgage Bankers Association of Kentucky. ‘On the other hand, you do have to reach out to different segments of the market and give them a little bit broader guidelines and a little bit broader underwriting approval to get them in a home.’”

The Journal Gazette from Indiana. “Complex real estate deals involving more than 100 Fort Wayne houses appear similar to transactions that have spawned lawsuits and federal indictments in other cities.”

“In March 2006, Mel Hochstetler was selling the last of his five rental homes when he was approached by Jeff Radabaugh, he said. Hochstetler ccepted Radabaugh’s offer to option the property. Two weeks later, Radabaugh had a buyer lined up, and closed on the house.”

“‘The only thing I can say about that closing is I don’t know who bought it in the end,’ he said. ‘I think it changed hands at least twice while we were sitting around the table. I was aware that it appeared there was an inflated price on the sale,’ Hochstetler said. ‘But I got my money and the check didn’t bounce, and I left it go at that.’”

The Daily Telegram from Michigan. “Home mortgage foreclosure is the only business on the increase at the Lenawee County Register of Deeds office, department head Vicki Daniels reported Tuesday to county commissioners. Deed transfers and mortgage recordings declined for the second year in a row during 2006, she said. The slowdown has worsened since the start of this year, she added.”

“One day last week only 30 documents came into her office, she said, a fraction of the normal volume. ‘We really went down, except for the foreclosures,’ she said.”

“Rather than lowering prices, most sellers are holding on longer and waiting for buyers to offer more, said equalization department director Martin Marshall. Buyers are also in a waiting mood, he said, expecting prices to eventually come down.”

The Pantagraph from Illinois. “Real estate agents have repeatedly said Bloomington-Normal has a strong housing market. Whether residents agree clearly depends on whether they’re trying to buy or sell.”

“Larry Bloyd is a frustrated home seller. For nearly five months, the Normal man has been waiting patiently for his bi-level home on Nottingham Chase to sell. The three-bedroom house has been on the market since last fall, far longer than the two months it took to sell his last home seven years ago.”

“‘After this long, I have no clue,’ Bloyd said. ‘I’m sure we’re not the only ones in this predicament either. It’s definitely a buyer’s market,’ Bloyd said. ‘We’ve dropped our price.’”

“Meanwhile, Philip Blaxton is a hopeful home buyer. The Bloomington man and his wife have been house-hunting in the Twin Cities for about two months. They’re excited about the prospect of a good deal and patient enough to wait for the right house at the right price.”

“‘I’ve noticed the prices going down. We’ve been watching a few specific houses, and those prices have been slowly dropping,’ Blaxton said. ‘A lot of the houses we’ve been looking at have been on the market for more than a little bit of time.’”

“Blaxton said he sees more for sale signs than sold signs outside of houses. A handful of houses that were for sale when he moved to Bloomington about eight months ago still are for sale today. He’s encouraged by his observations because he hopes it means a seller will negotiate more on price when the couple is ready to buy. But he also worries about what might happen five or 10 years down the road if they want to sell.”

“‘We’ve had a long run here with a great housing market, but it seems to be cooling off,’ Blaxton said. ‘How long is that cooling off going to continue and how will that affect the future?’”

The Pioneer Press from Minnesota. “Private boat docks on a lake stocked with walleye, hiking trails, trophy home designs with some lots nearly the size of football fields. What’s for the wealthy not to love about Spring Lake Estates? That’s what Toll Brothers is trying to figure out.”

“The national luxury home builder, which entered the Twin Cities market just two years ago, is re-evaluating one of its three developments in the area, saying Spring Lake Estates, southwest of Minneapolis in Prior Lake, is not attracting buyers as planned.”

“Toll Brothers Inc. won’t say whether it will pull out of the 120-acre Spring Lake project it opened last March with Edina-based Arcon Development Inc. Toll, which owns 42 of the 120 lots there, has sold just five homes.”

“Homes range in price from $545,000 to the $1.4 million estate house with a wine grotto, an individually vented cigar room and a resort-like stone spa off the master bedroom.”

“‘We’re taking a good hard look at Spring Lake in terms of the position of that,’ said Michael Noonan, president of Toll’s Minnesota division in Eagan. ‘Maybe it’s too expensive. Maybe it’s not matching up with what the area there is saying.’”

“Noonan said he suspects the Spring Lake Estates, sitting at the edge of the metro area, might simply be too far away for many buyers. Sitting in Toll’s spartan construction trailer at the site, project manager Jon Henson agreed. Toll’s lack of name recognition in the Twin Cities doesn’t help, he said.”

“‘In the Philadelphia market we’re the Mercedes of builders,’ quipped Henson.”

“The developer of Emerson Hills, a 35-unit condominium building on West St. Paul’s South Robert Street, had no luck luring preconstruction buyers last year. So the developer, Minneapolis-based Sherman & Associates, sounded out the city about converting the homes from owner-occupied to rental units.”

“No way, said city officials, who have invested $1.3 million in upfront tax-increment financing for the project. ‘When we redeveloped that block, we met extensively with neighbors, who said, ‘We have quite enough rental, and we’re not interested in having any more,’ West St. Paul Mayor John Zanmiller said. ‘We’re not interested in revisiting the rental issue, because we promised people, and we’re going to keep that promise.’”

“Now, just like many developers in today’s soft housing market, Sherman & Associates is turning to financial incentives.”

“The developer doesn’t want to reduce the condos’ sticker price, which ranges from $140,000 for a one-bedroom unit to $263,500 for a two-bedroom unit. Most of the condos are priced at less than $200,000, said Brad Goering, director of sales and marketing.”

“‘We chose value-added incentives in lieu of discounted prices, which would hurt us and the home-buying community,’ Goering said.”

“Loren Brueggeman, vice president of development for Sherman & Associates, said that, while he doesn’t regret getting involved in Emerson Hills, he doesn’t know when the housing market will turn around. ‘It’s just part of the business,’ Brueggeman said. ‘We’re all affected by the housing market.’”

“And it’s tough all over. Many cities have been forced to react to a flattening condo market and a rise in construction costs.”

The Tampa Tribune reports from Florida. “Scores of gamblers gathered at the Seminole Hard Rock Hotel & Casino on Saturday, but the name of the game was real estate, not roulette. Alan Westfall was betting he could break even on a six-bedroom home he invested in right before the local market went south last year. He hadn’t counted on a swarm of bidders betting on a fire sale.”

“Of the first 10 properties on the auction block, Westfall said his two properties drew the highest bids - $215,000 for a 3,000-square-foot home in the golf course community of Heritage Isles; another $215,000 for 56 acres in Riverview.”

“‘That doesn’t make us feel any better,’ he said. Not when the mortgage on the Heritage Isles place is $150,000 more than that. Not when he was looking for $2.5 million on the parcel in Riverview. Westfall, like many other hopeful sellers at the mass auction, didn’t accept the offers.’

The St Petersburg Times. “Within a few hours, the ‘All In Mega Auction’ was over, and 26 of the 46 properties had winning offers. Judging by some of the offers, it appeared that the festive casino setting and large turnout didn’t do much to offset the current buyer’s market.”

“The winning bid on a three-bedroom Sarasota home? $50,000. An 1,800-square-foot Bradenton home with a pool? $100,000. A two-bedroom house in West Palm Beach’s historic Flamingo Park? $115,000.”

“Angelina Lochridge, who hoped to sell her parents’ home in Valrico and watched the live bidding online, was disappointed with the top offer of $235,000. The home was originally listed at $324,000. ‘I think we’ll look into doing a lease option or renting,’ she said. ‘We’re not going to sell at a loss.’”

The Sun Sentinel. “The sluggish housing market plays no favorites. Miami Dolphins legend Dan Marino has reduced the price on his Weston home to $14.5 million from $15.9 million, his listing agent, Tim Elmes, confirmed. ‘He’s had no activity, and he wants to be more aggressive,’ said Elmes.”

“Marino’s palace has been on the market for almost two years. A custom home Marino and his family had built in Parkland also is on the market. Marino’s business manager, Ralph Stringer, said his client is selling the Parkland digs because the Weston home is taking so long to sell.”

“‘Maybe if you could find a buyer for the Weston home, he could take the Parkland home off the market,’ Stringer said last week with a chuckle.”

“The real estate auction frenzy continues, with one investor trying to unload a pair of penthouse condominiums in the Oasis development on Singer Island. Michael LaVallie bought the two condos in 2004, then watched the market cool considerably.”

“‘Buyers are sitting on their hands, and sellers are saying they’re not going to change the price,’ JP King Auction Co. spokesman Carl Carter said. ‘What an auction does is establish a market price.’

“Carter said he expects this auction to define the price ceiling for Singer Island condos.”

The Orlando Sentinel. “Last year, even as storm clouds gathered over the local and national housing markets, developers marched into Orlando City Hall with plans to add more than 1,600 condominium units to a downtown already brimming with thousands of condos, real or imagined.”

“As a result, the city center has now attracted more than 40 high-rise and midrise condo projects going back eight years. Yet nearly two-thirds of the towers still exist on paper only.”

“The developer of Eola Place, a 510-unit condominium in the southeast area of downtown, said last month that it was putting the two-tower project on hold after having spent thousands of dollars trying to generate sales for a 196-unit first phase.”

“John Bahng, JLJ’s president, said the project’s sales center on East Central Boulevard has been shut down. Of the sagging market, he said simply: ‘It is what it is.’”

The News Press. “Despite the drop in Cape Coral home sales, developers and builders continue to build multifamily condominium buildings in the city.”

“‘It is a cycle and the market will come back; it might take two or three years,’ said Robbie Lee, a Cape Coral developer. ‘I have projects that will take two to three years to get permitting approval. The market will be there.’”

“For now, however, real estate sales associates aren’t optimistic about the market. ‘No one is buying,’ said Realtor Ken Worthington.”

“As of Thursday, the MLS, which developers don’t usually use but real estate sales people do, listed 1,092 condos for sale in Cape Coral. In the last six months, 97 sold.”

“‘It is just difficult to sell anything,’ said broker associate Scott Marinelli. ‘This is a buyer’s market.’”

The Palm Beach Post. “The inventory of existing homes, which was up 71 percent Palm Beach County alone in December, may grow as ‘re-listers’ - people who couldn’t sell in 2006 - are likely to try again in the spring. And analysts expect a further uptick in the region’s new-foreclosure filings as high-risk borrowers continue to default on loans and lenders tighten credit standards.”

“Many of those borrowers were investors who artificially pumped up demand, and prices. ‘Builders ramped up production to meet surging demand during the housing boom,’ said Michael Larson, a real estate analyst in Jupiter. ‘But it turns out a big chunk of that demand surge wasn’t ‘real’ demand.’”

“Further proof the local housing boom has gone bust: Palm Beach County buyers closed on only 976 new homes in the fourth quarter of 2006, down drastically from its boom-time peak of 3,123 closings in the third quarter of 2003, MetroStudy said.”

“Credit Suisse estimates that investors accounted for 20 percent of all U.S. home sales in 2005. That percentage was even higher in South Florida, analysts believe, and the steep and speedy decline in new-home sales in Palm Beach County and the Treasure Coast seems to support that position.”

“With no ‘end user’ in sight, these investors wound up with units they couldn’t sell, and sometimes with units they couldn’t afford to carry.”

“‘Investors were a builder’s dream during the boom,’ said Jim Sahnger, vice president of Palm Beach Financial Network. ‘Unfortunately, everyone has to wake up sometime. Home prices, although declining, are still too high … particularly when taxes and insurance are considered.’”

“The surge of foreclosures sweeping the nation is testament to that sad fact. New foreclosures in St. Lucie County surged an eye-popping 337 percent in January.”

“‘Hundreds of units that were snapped up by investors are now sitting empty, looking for buyers,’ said analyst Larson. ‘Builders are reacting by slashing production and piling on the incentives to clear the unsold inventory off their books.’”

“On the Treasure Coast, it will take a good deal of great deals to make a dent in housing inventory. In St. Lucie County, the blistering pace of new-home construction has resulted in an astounding 19.1-month supply of new homes, according to MetroStudy. That’s just slightly off from the record, a 21.4-month supply, set in the previous quarter.”

“Despite strong support for the county’s limited-growth regulations, the number of finished vacant homes in Martin County grew during the fourth quarter because of a surge in speculative buying in 2006, said MetroStudy’s Bradley Hunter. The 391 finished vacant homes represent a 12.1-month supply, he said.”

“‘The number of finished vacant units is at the highest level reported in recent years, despite rentals of a large number of investor-purchased homes,’ Hunter said.”

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