Housing Is Going Into The Tank
In Business Las Vegas reports from Nevada. “With Nevada ranking first in the nation in foreclosure rates in the first quarter of 2007 and again in April, the mortgage lending industry and consumers are taking notice. Foreclosures in April were 225 percent higher than April 2006. And insiders say what some call a crisis and others call an industry correction could reshape the mortgage-lending industry for all stakeholders.”
“Mortgage Lending Division Chairman Scott Bice said much of Nevada’s foreclosure problem was caused by speculative buyers. ‘Of the 24,000 listings on (the Greater Las Vegas Association of Realtors Web site) 50 percent are vacant, up from 40 percent,’ Bice said.”
“Tom Powell, chairman of the Mortgage Advisory Council and chief executive of IntoHomes Mortgage Services in Northern Nevada, agree, saying that the last five to 10 years of bullish housing markets spurred speculators on.”
“Powell said speculators, who bought from developers, saw their investments appreciate before they were even completely constructed, and then sold those vacant homes for profit. But when the market plunged in mid-2006 many speculators were caught short, he said.”
“And foreclosure rates will continue to climb, since the majority of Nevada mortgages are less than 3 years old, the average time by which a mortgage will default.”
“Bice said the industry would have to sift out the truly needy, troubled borrowers from speculators who got in over their heads.”
“The stormy economic year ahead will be characterized by disheveled coiffure, garbage cans on the lawn and a migraine headache, especially for residential housing developers.”
“The economic downturn in Nevada, which is mild compared to housing slumps in other parts of the country, will last at least through 2007 and into 2008, according to Keith Schwer, executive director of the Center for Business and Economic Research at UNLV.”
“‘There is going to be some unpleasantness ahead,’ Schwer said.”
“Before the economy improves, the residential real estate sector will continue to lag, dragging down the Southern Nevada economy with it. Schwer said there has been a greater decline in jobs for construction in Nevada than nationally, since construction makes up a larger sector of the local economy.”
“‘Our state will be impacted…more than the rest of the nation,’ Schwer said.”
“Schwer said the faster prices come down, the sooner the market will correct itself. In the meantime, he said developers should look to make money through niche markets, especially affordable housing.”
“‘Even though housing is going into the tank, there is still money to be made,’ he said.”
“What should people watch for to determine if the housing market is rebounding? National housing analyst John Burns said the apartment market is a good indicator.”
“The reason is that as the gap between homeownership costs and rental costs narrow, buyers are more likely to purchase a home, Burns said. ‘The gap between ownership and renting reached an all-time high in most markets last year, and is beginning to narrow as rents rise and prices fall,’ Burns said.”
“Burns said he doesn’t have good data on the cost of renting a new condo versus a new apartment but suspects the differential is narrowing more quickly as prices on new condos have fallen rapidly in many areas over the past year.”
“As for the rest of this year, Burns said landlords may not be able to raise rents very quickly because builders stole their most qualified tenants in previous years and rental condos and homes are providing the apartment market competition at the higher end of the market.”
“The value of building permits issued by Las Vegas during the first five months of 2007 is down 43 percent from the first five months of 2006 from $860 million to $598.”
“Overall, some 14 percent of households can afford homes in Las Vegas versus 40 percent for the nation as a whole.”
The Arizona Republic. “Arizona, California, Nevada and Florida led the nation for skyrocketing home prices a few years ago. Now these states are leading the nation for increases in foreclosures.”
“Data from the Mortgage Bankers Association of America show these states posted the biggest gains in new foreclosures during the first quarter of 2007. Arizona fared slightly better than the other states and is at the bottom of the dubious list.”
“The four states have another thing in common. Speculators sparked their home price run-ups a few years ago. It happened in 2004-05 for Arizona. Investors left Las Vegas after pushing up prices 50 percent there and came to the Valley to do the same. By 2006, prices had shot up 50 percent in metro Phoenix, and most speculators moved on.”
“Despite its recent spike in foreclosures, more than tenfold in the past year, Arizona still ranks in the bottom 10 for the overall number of people losing their homes.”
“In metropolitan Phoenix, which makes up more then 75 percent of the state’s housing market, home prices are down about 5 percent from a year ago. More foreclosures could work to drive down home prices further.”
The East Valley Tribune from Arizona. “A 25-year veteran of the development business, Gilbert homeowner Anthony Amendola knows how to spot quality construction. That’s why he hired Toll Brothers, a national builder he respected, to build his more than $500,000 luxury home.”
“But on his first walk-through shortly before the deal was set to close, Amendola realized his dream home was a nightmare. Sinks, cabinets and faucets were missing. Gaping holes surrounded outlets. The electricity wasn’t turned on. ‘My reaction was complete disgust,’ he said.”
“Some believe the frenzied pace of construction during the housing boom led to shoddy workmanship as builders struggled to find enough qualified laborers to meet demand, a theory industry observers say is likely true in some cases.”
“For homeowner Brian Eastley, the problem comes down to quality control. Eastley walked by the construction site of his home daily, finding new issues, such as cracking in the foundation slab and stucco. He addressed those problems with Toll but still faced more when the home was done, including bubbles and trowel marks on walls.”
“‘They’re only as good as the labor they’ve hired,’ he said.”
“During the height of the housing boom, builders were so busy that they couldn’t find enough skilled labor, said John Fioramonti with research firm Hanley Wood Market Intelligence. Job superintendents were spread too thin and many didn’t have experience in mass production, he said.”
“‘It was a real aberrational time in terms of the volume that was going on,’ Fioramonti said. ‘Nobody had a good handle on how to deal with it.’”
“Supervisors were under horrendous pressure, and most builders weren’t restricting sales, (building inspector) Tony Hecht said. City building inspectors were also overwhelmed, he said.”
“Toll homeowner John Kenneally ’s battled sink holes in his yard created by water runoff from the roof. Window wells in the basement have also filled with mud when it rained, and water has seeped in through the walls, Kenneally said.”
“Workers have come out repeatedly to try to fix the problems, though not without the pressure of repeated calls, he said. Kenneally worries that his home’s value may be hurt.”
“‘We’ve had mold, and now I’ll have to fill out a mold disclosure if I go to sell or rent the house,’ he said.”