The Housing Bubble

The Daily Star reports from Arizona. “Tempted by a generous price cut, Cynthia Saenz couldn’t resist buying a new house in Vail about eight months ago. She put her Southeast Side house up for sale five months ago and has reduced the 1,800-square-foot home’s price from $230,000 to $200,000. Still, it hasn’t sold. Saenz’s house is among a record number of properties on the market in the Tucson area.”

“An explosion of home-building and numerous condo conversions during the boom of a few years ago have led to an unprecedented glut of homes now that the market has cooled, according to real estate executives and industry analysts.”

“‘Three months ago, we thought we would see some degradation in the number of units in inventory, but it’s going up,’ said John Strobeck, a Tucson housing market consultant. ‘That’s not a positive sign.’”

“Residential listings averaged 9,925 at the end of January, February and March, according to the Tucson Association of Realtors MLS, nearly triple the average for the same quarter in 2005, the peak year for sales. In March alone, the number hit a record of 10,185.”

“Sales for the quarter were down about 18 percent from the same three months in 2005, according to the Realtor statistics.”

“OnSite Realty owner Caroline Auza thinks she can trace the oversupply in the market to just one day in 2005. On March 16 that year, a 120-unit converted condominium project she was handling, Tierra Catalina near Skyline and Campbell, sold out in about three hours.”

“‘After that, the supply (of condos) just quadrupled’ as investors poured money into Tucson condo conversion projects, she said.”

“‘In this market, you have a number of sellers who have a greatly inflated perception of what their home is worth,’ said Marshall Vest, an economist at the University of Arizona. ‘Eventually, those sellers will either come to their senses and lower their asking price, or they’re going to take the homes off the market.’”

“Also potentially adding to the problem, said Tucson buyers’ agent Jon Quist: Many of the buyers he represents are not interested in far-flung, so-called ‘cookie-cutter’ developments, which sprung up in response to investor demand. ‘I don’t sell these real cookie-cutter-type houses,’ said Quist. ‘There could be (for sale) signs like a forest in those neighborhoods.’”

“Saenz, the seller on the Southeast Side, said she isn’t too worried about the time it might take to find a buyer. Her house in Vail is still under construction. And under her deal with the seller, she won’t have to make mortgage payments until she moves in.”

The East Valley Tribune. “Like the rest of the languishing housing market, Valley condominium sales have slipped in the past year. But that hasn’t discouraged some developers from betting that the right project in the right location will thrive. Construction is set to begin later this year on dozens of new condos in the East Valley.”

“The condo market goes through periods of overbuilding with developers eager to capitalize on trends without doing much research, real estate analyst RL Brown said.”

“People want to be in downtown areas, near the hubbub of galleries, restaurants and bars, said Susan Bitter Smith, spokeswoman for the Main Street Plaza condos in Scottsdale. Though some in the real estate industry worry that the market is being flooded with too many condos, Bitter Smith said many projects are still selling and there are waiting lists.”

“‘(Developer’s aren’t) out there spending money for sthings they can’t sell,’ she said. ‘So far, there has not been any lack of customers.’”

The Arizona Republic. “Monica and Jaime Silva thought they were on the road to owning their first house. They didn’t have much to put down on the $215,000 house in Maricopa, but the lender approved them for an ‘80-20′ program, in which the down payment and the balance of the sale price are borrowed in separate loans.”

“But about a week before they were to close on their home, their lender canceled the loan. The mortgage company had tightened its lending requirements on subprime loans. The Silvas no longer qualified.”

“‘We were devastated,’ Monica Silva said. ‘Our credit isn’t perfect, but why would they tell us yes then no?’”

“Subprime mortgages account for a big piece of home financing in Arizona. The state ranks No. 2 nationally in the percentage of subprime loans, with nearly 17 percent of homeowners in using them.”

“Jill Hoogendyk, broker and a board member of the Arizona Mortgage Lenders Association, had nine subprime loans canceled between mid-February and mid-March. That is about half of the company’s typical volume of loans a month.”

“One client was trying to refinance an adjustable-rate mortgage but couldn’t. The couple now pay the new rate -$500 more a month -while shopping for another non-prime mortgage. They were a victim of the collapse of New Century Financial Corp. of Irvine, Calif., which filed for Chapter 11 bankruptcy reorganization in April.”

“‘There was no warning,’ Hoogendyk said of the lost New Century loan. ‘We had a loan that was approved and shipped to them. It probably would have closed in a couple days after that if they hadn’t gone out of business.’”

“Housing speculators also jumped on the subprime bandwagon. They liked the idea of paying as little as possible for mortgages that they expected to dump after selling the houses for quick money.”

“With home prices soaring, lenders came up with an array of exotic mortgages. Lenders were willing to stretch traditional borrowing standards because they were writing mortgages on properties whose values increased 30 to 40 percent a year in some neighborhoods.”

“‘There were a lot of companies that made loans that made no sense,’ said Jay Luber, vice president of First Horizon Home Loans of Phoenix.”

“‘It’s high risk. At this point, almost everyone has pulled out of the subprime market,’ said Bill Ryan, (an) agent in the East Valley. ‘If there is subprime, it has to be very extenuating circumstances, full documentation and 12 percent rates or higher.’”

“Tighter lending restrictions that are cutting back subprime loans come at a bad time for the Phoenix-area housing market. Real estate agents and lenders are losing deals because buyers can no longer qualify for the riskier loans.”

“‘Builders are going to get a bunch of inventory back, and I am, too,’ said Doug Fulton of Fulton Homes . ‘You don’t want to get one (house) back if you don’t have to. You’re kind of scratching for sales as it is.’”

“The changes in lending standards have been swift. David Blank, an agent in northeast Phoenix, closed a house with a subprime loan just two months ago in which the buyers had a bankruptcy and a foreclosure but still got 100 percent financing.”

“Blank said the buyers wound up putting less than $300 into the deal after securing $8,300 in closing-cost money from the seller, some of which was used as a fee to secure an interest rate lower than the market rate.”

“‘They got in under the wire,’ Blank said of the buyers. ‘They got 100 percent financing.’”

The Telegraph reports on Colorado. “For Cathy Busby, May 1 marked a personal ‘Mayday!’ as she was sucked into the housing crisis sweeping the United States. On Tuesday, she went into arrears on her mortgage after her monthly repayments soared by 40 per cent. The hospital administrator will lose the three-bedroom home in the Denver suburb of Montebello that she bought 11 years ago, unless she can reach a deal with her lender.”

“‘It’s a terrible thought that I could lose it all,’ she said on the first day that she failed to pay her interest-only-mortgage.”

“These western states witnessed a decade-long boom in house prices, fuelled by their popularity as places to live. ‘Folks thought that prices would rise indefinitely,’ said Tom Rooney, a Denver property entrepreneur. ‘It seemed like a good bet, but they got it wrong.’”

“Two years ago, Miss Busby took out a re-finance mortgage to cover her existing car, home and student loans. She borrowed $170,000, the value of her home, at an interest rate of 7.6 per cent (or $1,076 a month).”

“She knew that rate would increase after two years, but planned to take out another loan at that point to avoid the extra charges. However, when she had her house revalued a few months ago, it was worth $125,000, falling with the slowdown in the market.”

“Unable to refinance the original loan, she must now pay a higher rate of interest, 10.6 per cent, which means payments of $1,501 a month, a $425 increase. ‘With my other outgoings, I can’t afford that,’ said Miss Busby, a divorcée who earns $4,000 a month before tax.”

“For other Montebello residents, such as the family that walked away from their debts and left the house next to Miss Busby empty, it is already too late. The same is probably true for Harvey Ryan, who built his home 32 years ago. ‘It breaks my heart,’ said Mr Ryan, who suffers from dementia.”

“He took a loan of $115,000 four years ago and now his home is scheduled to be sold at auction this month as he cannot meet the monthly charges of $1,052, nearly half his disability income and pension.”

The Denver Post. “Hundreds of thousands of home valuation notices are hitting mailboxes across the state, leaving some homeowners wondering what county assessors see that they don’t.”

“County assessments show home values rising on average anywhere from 3 percent in Adams County to about 11 percent in Boulder County over a two-year period ending June 30, 2006.”

“By contrast, Realtor tallies and other counts show anemic, if not declining, home prices, with the typical metro home now taking 119 days to sell and metro Denver foreclosures rising at a pace of 30 percent a year.”

“For the current cycle, the 18-month time frame stretched from Jan. 1, 2005, to June 30, 2006, when the market was stronger than it is now. ‘Our value is approximately one year old,’ Arapahoe County assessor Corbin Sakdol said. ‘During that time period, the market was possibly better than it is today.’”

“Many areas saw declines, triggering something Adams County assessor Gil Reyes thought he’d never see, homeowners protesting fallen property values. That typically means lower taxes, but it isn’t good news for borrowers desperate to refinance out of adjustable-rate loans on homes they paid too much to purchase.”

“‘We have received a lot of phone calls from people wanting to know about why their value went down. A lady filed an appeal because she was upset she had lost equity,’ he said.”

The Rocky Mountain News. “The median price of a Denver area single-family home was $248,000 last month, down slightly from $250,000 in April 2006.”

“Mic Ortega, a broker in Lakewood, said a number of his clients gave up selling their homes in January, February and March because the weather was so bad but are sprucing them up to put them on the market.”

“Broker associate Connie Telfer noted that she and her husband recently bought two homes as investments through short sales, where the lender takes less than the full amount on the loan on a house facing foreclosure.”

“‘It’s a perfect time to buy if you have money to invest,’ Telfer said.”

The Greeley Tribune. “Privacy, these days, is harder to come by…as Greeley recovers from an unprecedented growth boom that made it, along with the rest of Weld County, one of the fastest-growing metro areas in the country, according to the U.S. Census Bureau.”

“‘Everywhere you look,’ Joyce Warehime said, ‘it’s houses.’”

“Even when the boom hit Fort Collins and Loveland, Greeley and other areas, including Windsor, lagged behind, and city officials were anxious for the growth. They wanted it. They practically begged for it.”

“City officials began to do little dances when the growth rate, measured by planners on how many new housing units are added, reached 2 percent in 1995. In 1997, it hit 3 percent. Now 3 percent is considered a robust rate, a rate that means a ton of building activity and new homes are popping up everywhere. After a couple decades of never reaching 2 percent, Greeley reached at least 3 percent six of the next eight years.”

“‘It used to be slow in the wintertime, and so you’d get some other projects done,’ Greeley Planning office director Greg Flebbe said. ‘It hasn’t been that way for 10 years.’”

“An voter growth initiative, Amendment 24, helped open the floodgates. The fear of ‘get it while it’s hot’ created what planners called the great land grab of 2000. Cities in northern Colorado grabbed as much land as they could. Cities threatened legal action against each other, including Evans against Greeley over a parcel of land.”

“‘We annexed more that year than had been annexed in the previous 15,’ said Becky Safarik, a planning office assistant.”

“Once that land was available, developers moved to put homes on it before others did, meaning many were eager to move as quickly as they could on it.”

“The boom has ended, at least in Greeley, where the growth didn’t even reach 1 percent in 2006. Half-empty subdivisions out west are more common than planners would like these days, and yet developers are pushing Greeley’s western border.”

“Empty lots that are building-permit ready, meaning you could stick a home on it tomorrow, number into more than 2,500. That’s generally at least 10 years of inventory, Flebbe said, and that number doesn’t take into account all the vacant homes from foreclosures or homes that are up for resale.”

The Post & Courier reports from South Carolina. “Contractors for D.R. Horton were clearing the thick wooded tract behind Carol MacLean’s home to make way for a 127-home subdivision. Though Horton’s corporate headquarters hadn’t yet purchased the land, local officials wanted to get a head start on the project. As it turned out, the home office never gave the deal final approval, said Steve Dufour, president of Aiken-based Dufour and Associates Realty.”

“‘They dropped their earnest money and ran,’ said Dufour.”

“The 68-acre Summerville tract the company was eyeing, now on the market for $6.3 million, underscores how the slowing housing market in Charleston and most other parts of the country has affected even deep-pocketed home builders.”

“At the local level, representatives of the big builders said they have had to adjust to the times. The growing inventory of homes on the market has made it more difficult for sellers, triggering a rise in sale cancellations and a smaller pool of prospective buyers, said Frank Finlaw, Beazer’s Charleston division president.”

“‘It’s not, ‘If you build it, they will come’ anymore,’ Finlaw said.”

The Tennessean. “Mary Jennings is struggling to keep her house out of foreclosure, but the arithmetic is working against her.”

“The retired kitchen supervisor refinanced her Nashville home in November and has already missed two mortgage payments totaling $4,739. She is likely to miss more. Her monthly income is just $2,780, not nearly enough she says to pay the mortgage and other bills.”

“In the first three months of this year alone, there were 312 Davidson County foreclosures, as borrowers defaulted on $67.5 million in mortgages. This amount is 70 percent higher than in the same period last year, although the figure is skewed by an unusually high number of multi-unit residential defaults. The problem is hardly unique to Davidson County.”

“The Tennessean found more than a third of Nashville’s foreclosures since 2005 have been on properties valued above $100,000, some on loans to people with both good incomes and good credit.”

“‘I don’t know what to do,” Jennings said. ‘”I didn’t go asking for this loan. The company wrote me and said they could refinance your home and put some money in your hand.’”

“The mortgage companies and their loan officers charged Jennings more than $24,591 in upfront fees. If Jennings is able to keep her home, things could get worse. Her monthly payment of $2,369 is scheduled to jump to $3,003 in less than two years.”

The Courier Journal from Kentucky. “Homes going up in metro Louisville this spring are expected to cost, on average, about 5 percent less to build than last year, according to estimates included with their building permits.”

“The lower builders’ cost suggests buyers may have become more price-sensitive as 30-year mortgage rates have risen back above 6 percent and foreclosure rates have spiked. As builders hammer their way out of the current housing slump, less-elaborate homes are leading the way.”

“At the same time, builders who put up more expensive, showplace homes last year, even as the Louisville market softened, are sitting on unsold houses.”

“‘A lot of those builders are reluctant to go ahead and build another house in that price range until they exhaust some of the inventory they already have,’ said Rocky Pusateri, VP of Louisville-based Elite Homes.”

The Indystar from Indiana. “The seven-unit luxury development at 1557 N. College Ave. is one of many such projects vying for buyers’ attention in a market awash with more than 1,000 newly built or soon-to-be-built condo units.”

“‘There is so much on the Downtown market right now,’ said agent Larry Gregerson, who is marketing the College Avenue Condos. ‘There aren’t enough buyers to support it.’”

“The ample supply, some would say it’s more like a growing glut, of Downtown condos figures to bring lowered list prices and offers of free amenities for buyers as the spring selling season arrives.”

“Gregerson, the fourth agent to try to sell out the College Avenue project, is advertising a 10 percent price cut for the units, which range from $245,000 to $317,000. One has been sold.”

“Indianapolis Downtown Inc. says 1,743 housing units, mostly condos, are slated to open in the next three years. F.C. Tucker Co.’s Web site for Downtown condos lists 29 projects with available units.”

“‘There’s definitely a lot more supply than demand,’ said developer Shawn Cannon. ‘You’ve got an oversaturated market. That’s very concerning’ for developers.”

The Ann Arbor from Michigan. “About 90 new condos came on the market downtown in 2006 when Liberty Lofts and Loft 322 opened and another 250 are planned for Ashley Terrace, The Gallery and Kingsley Lane.”

“But amid a sluggish housing market, sales have reportedly been slower than expected, prompting one condo development, Citi Centre Lofts, to change into apartments. Another tower planned to hold 90 condos in the William Street Station project is now being considered for a hotel.”

“The average sale price is down $7,400 to $191,712, while the median price fell nearly $24,000 to $161,250.”

“‘Having an imagination is very difficult for people. Making a commitment for a year from now is tough,’ said developer Peter Allen of Kingsley Lane.”

The Detroit News. “Southeast Michigan’s housing market continued to crumble in 2006, as new homebuilding permits hit a 23-year low, and experts say it will get worse.”

“Jim Rogers, a Southeast Michigan Council of Governments manager, said the housing slide could potentially last through 2009 as the region continues to lose jobs. ‘We have not yet seen a bottoming out of this,’ he said.”

“Rather than buy a new home, Claude Rochaix bought an existing five-bedroom colonial in Beverly Hills last month for $10,000 below the appraised value. The auto parts sales manager said he paid $395,000, while similar homes sold a year ago for $450,000.”

The Grand Haven Tribune from Michigan. “The number of mortgage foreclosures processed by the county in 2006 is more than double the number foreclosed three years ago, and more than 12 times the number of foreclosure filings in the county 10 years ago. And 2007 is shaping up to top last year’s record.”

“‘This morning, we had a record number of foreclosures (for one week) in Ottawa County,’ said Steven Cotton, a county Sheriff’s Department civil deputy who serves the foreclosure notices across the county. ‘We had 26 sales. Part of that was (an unsold) condo development in Ferrysburg.’”

“Ottawa County Register of Deeds Gary Scholten said it used to be generally middle-income families that had their mortgages foreclosed, mainly because it used to be hard for lower-income people even to get a home loan. Not anymore.”

“Scholten said part of the problem is that commission-driven lenders push through loans that often would not have been approved in the past. ‘It gets real tough for them,’ Cotton said. ‘The vast majority of the foreclosures that we see have more money owed on them than the property is worth.’”

The Record Eagle. “Sluggish property value growth and soaring home foreclosure rates paint a grim picture along the Interstate 75 corridor in northern Michigan.”

“‘The last two years have been slow. I would imagine the economy has something to do with that. This year we’ve had quite a few houses on the market and not much selling,’ said Bill Kerr, equalization director in Otsego County.”

“Builder Dale Ringlein has a house for sale in the Lakes of the North resort community that straddles Otsego and Antrim counties. His property has not sold, despite nearly three years on the market and a reduced price.”

“The ranch-style house with three bedrooms and two bathrooms is now listed at $99,000, down $10,000 from the initial price. ‘I doubt if I could get $89,900 for it, so I may lose money,’ Ringlein said.”

“He said a surplus of houses on the market combined with a poor economy means that far fewer properties change hands. ‘I never dreamed that it would take two or three years to sell that property,’ Ringlein said.”

The New York Times reports on Florida. “For several years, the defining images of Florida’s frenzied real estate boom were crowded open houses and speculators flipping preconstruction condominiums. But since the market sputtered in mid-2005, as sales fell and inventories soared, property auctions and price cutting have become commonplace.”

“Bargains are available for houses below $500,000 because of a bloated inventory of standard two-bedroom, two-bath condos. ‘We have a ton of similar properties out there, so what is going to make the decision? Price,’ said Spencer Haynes, a broker in Naples. ‘You are going to get a better deal.’”

“For some sellers in Miami, discounting is the best way to close a deal. In April, David Holtzman sold his 4,200-square-foot house in Bayside, but only after knocking more than $100,000 off the list price.”

“Built in 1925 and recently renovated, the house had languished on the market for six months. At one point, Mr. Holtzman removed auction signs from neighbors’ lawns, fearing they would discourage prospective buyers.”

“‘It was just bad luck to be caught in the tail end of what used to be the strongest housing boom in history,’ said Mr. Holtzman.”

“When Marsha Wolak, a real estate agent-turned-auctioneer in Sarasota, on the Gulf Coast, held an auction in the city last month, 26 properties of the 90 being offered found buyers, including vacant lots for under $30,000 and condos in the $300,000 range. But high-end properties, like a $4 million gulf-front home, went unsold.”

“Ms. Wolak reasons that investors are willing to take a risk at the lower end because they can eventually build on a lot or rent out a house. But, she said, ‘it is tough for someone to speculate on a multimillion-dollar house because they don’t know if the value will go up or down, and there’s a chance of it going down.’”

The Herald Tribune. “Though the developers of the 17-story 1350 Main St. condo tower in downtown Sarasota have been remarkably successful in getting buyers to close on their units, one is putting up a fight.”

“Warren Silver of Bangor, Maine, sued in March to get out of his $480,000 contract. But Sarasota Main Street rapidly retaliated with a counterclaim, stating that Silver ‘had no right or justification to terminate the purchase agreement.’”

“The Southwest Florida office market is beginning to feel the impact of the downturn that hit the residential real estate sectors beginning in summer 2005.”

“‘Commercial always follows residential,’” Dan McLeroy, an agent who leases office space in the Sawyer Oaks complex. ‘As long as residential is off, the office market will trend downward.’”

“‘People don’t realize the tremendous impact residential real estate development has on the local economy,’ said Joe Hembree, who owns a Sarasota commercial real estate brokerage. ‘Mortgage brokerages, title agents, real estate firms, building contractors and subcontractors that were expanding during the boom are not expanding now.’”

“‘We have three floors, and two are not rented,’ said Bill Keenan, whose Fort Lauderdale company erected the 75,500-square-foot structure.”

“Abbie Forrest’s company moved to the Bank of America building on Sarasota’s Main Street. The space was previously occupied by Roper, which moved and was willing to sublet its old space at a deep discount. ‘We got a good deal,’ said Forrest.”

“‘I want to purchase space,’ Forrest said. ‘But I didn’t want to purchase this year because I’m uncertain about interest rates. If they go up, the office market will plummet.’”

The Naples News. “In Naples, there’s still a nearly three-year supply of homes on the market. Last week, there were 11,800 single-family homes and condominiums in the MLS. In the past year, about 4,000 homes sold in Naples.”

“‘There is more inventory every place. But I don’t know a community to especially pick and say, ‘OK that one is really struggling,’ said Spencer Haynes, president of the Naples Area Board of Realtors.”

“In Lee County, there are more than 15,000 single-family homes and another 9,600 condominiums on the market, said Brett Ellis, a partner with The Ellis Team in Fort Myers. ‘What’s good for buyers right now is that they have excellent selection and they still have some negotiating leverage,’ he said.”

“In the first quarter, there were 939 closed sales reported in Naples. That was down from 1,250 in the same months a year ago. The median home price in Naples was $399,512 in the first quarter, down from $443,950 a year ago.”

“Particularly tough is the $500,000 and under market, where there is a ‘ton of inventory’ because investors overbought in 2004 and 2005, hoping to take advantage of rising prices, Haynes said.”

“In season, developers slashed prices during weekend sales and offered higher commissions, trips and even Rolex watches to real estate agents to encourage them to sell homes in their communities. Some developers put off or even canceled projects this season because of the competition.”

“‘Developers don’t want to keep feeding the pipeline when they’ve got inventory standing there,’ said Michele Harrison, president of the Collier Building Industry Association.”

“Chris Elizabeth Griffith, a new home specialist in Bonita Springs., described the season as odd and unpredictable. She had some unusual phone calls, many from buyers looking to get out of their contracts.”

“Some buyers ended up renegotiating their contracts for a lower price, while others walked away from contracts at closing because the homes were valued at less than they agreed to pay, she said.”

“During the season, Griffith saw sellers get really low offers and she warned her clients to expect that in a down market.”

“Realtor Tom Doyle said many homes on the market in Collier County are still overpriced, though the median price has dropped. There’s as much as a 30 percent difference in pricing for the same home because sellers are still too optimistic. He estimates that a third of the homes listed for sale in Naples were bought in 2005 or later by so-called flippers.”

“‘There are still far too many people who have not adjusted to today’s reality,’ said Ellis. ‘If you’re not priced at the market, your home is not on the market. If you’re at the right place you’re going to sell.’”

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