The Housing Bubble

The LA Times reports from California. “Are you a homeowner who is having trouble selling your house? National housing experts say you can heap some of the blame on those big builders with their much-ballyhooed sales and the banks that have put too many foreclosed homes on the market.”

“Delores Conway, director of USC’s Casden Real Estate Economics Forecast, points to Riverside County as ground zero, a place that was overbuilt, with new homes now being discounted by builders, and that is witnessing a sea of foreclosed homes on the market, with more expected.”

“RealtyTrac reported last week that Riverside County led the state in foreclosure activity. Neighborhoods that just a year ago were flourishing are today blighted with house after house of ‘for sale’ signs and properties abandoned to foreclosure.”

“Last month, K. Hovnanian Homes showed just how low builders could limbo. It held what was dubbed the ‘Sale of the Century’ and reduced prices of its unsold inventory in 19 states, including California, by eye-popping amounts: e.g., $300,000 off a $2-million model in Orange County.’”

“Dani Babb, a real estate consultant, spared Hovnanian no mercy over its banner sale. ‘What Hovnanian did hurt everyone, including the long-term, broader market — which includes them too,’ Babb said. She explained: The ability to get loans is based on comps — the sales prices of comparable homes nearby. Now, homes near the ones for which Hovnanian slashed prices will appear inflated by comparison and may make financing more difficult.’”

“‘Hovnanian sent a signal to the entire consumer base that things are scary out there,’ Babb said.”

The Washington Post. “The good times are over for the get-rich-quick industry that grew up in Orange County and thrived in the first half of the decade.”

“After more than two decades in the mortgage business, Tony Ventimiglio got his big break in 2001 when he accepted a managerial job with a lender here in the heart of Orange County for $225,000 a year — more than double what he had made in each of the previous four years.”

“When the housing market soured, those lenders and dozens of others nationwide shut down or scaled back, leaving workers like Ventimiglio in the lurch and contributing to an abrupt drop in mortgage-related jobs.”

“‘When I started working there in 2003, I was embarrassed because I was driving a Cadillac and the young office clerks were all driving Mercedes and BMWs,’ said Ventimiglio. ‘There were a lot of people who knew nothing about mortgages. They were simply in the right place at the right time.’”

“At PC Lending in Irvine, some of the most skilled agents previously sold cars or time shares. They had lots of drive but rarely a college education, said Brett Brofman, the company’s VP of administration and operations.”

“Of the 60 agents at her firm, only 15 are actively producing loans now, Brofman said. The rest have left the business or branched out into other jobs.”

“‘One guy quit and is now interviewing for bellman positions at local hotels,’ Brofman said. ‘Another lady is selling tickets at a playhouse at night making $10 an hour’ to supplement her much-reduced commission at PC Lending.”

“Brofman agreed to a pay cut in return for a two-day work week when business slowed. Brofman has since returned to work full-time without a pay raise to help keep the firm afloat.”

“Meanwhile, she’s blown through $200,000 in personal savings and amassed $25,000 on her corporate credit card to support a branch office of PC Lending that she and her husband own. The branch, which used to have 16 agents, now has three.”

“‘It used to be that you could come in a few hours a day, enjoy a four-day weekend and make plenty of money,’ Brofman said. ‘It’s mean to say, but I used to joke that I could get my cat on the phone to sell a loan and a rate: ‘Meow, meow, 5 percent.’ Done.’”

“Kelly Markham earned $200,000 in commission in 2005 as a loan officer at an Irvine mortgage brokerage. When commissions dried up, she began looking for another job to support her six-month-old baby and hang on to her $600,000 home.”

“‘I’ve signed up for work at a temp agency, but all I’ve gotten is five hours of work in the past four weeks stuffing envelopes in some office,’ said Markham, as she perused Starbucks job listings online one recent afternoon.”

The Recordnet. “Countrywide Financial Corp., sharply paring its work force nationally in the midst of an on-going housing slump, has closed its Stockton loan-processing center.”

“The company has two other offices in the city, one which handles only home loans for KB Home homes, and a Countrywide Home Loan office in north Stockton. Both offices had mostly empty desks Friday afternoon.”

“One Stockton resident, Susan Feighery, has been trying to get a Countrywide mortgage loan for a condo purchase, but she said she is frustrated because her loan application has been delayed as it has seemingly bounced from one person to another as staffing dwindled.”

“Feighery has several investment properties in addition to the Weston Ranch home she moved into in 2000.”

“She estimated that perhaps a dozen to 15 people would have worked in the fully staffed loan-processing center but that when she went in recently to the center, she saw ‘empty desk after empty desk after empty desk.’”

“Susan Dell’Osso thought she would be overseeing the building of luxury riverside homes by now. But with area home prices dropping, Dell’Osso announced this week it will be another year before model homes rise out of the Delta soil.”

“‘The last thing I want to do is flood the market with homes that people don’t want to buy,’ Dell’Osso said. ‘Thankfully, we have the luxury of holding off.’”

“A plan to build residential lofts in downtown’s tallest building has been put off, delayed as other plans have been by the housing market’s fall, officials said.”

“‘There’s no market for that right now,’ Redevelopment Director Steve Pinkerton said this week.”

“In March - before it came out that Stockton’s foreclosure rate was among the highest in the nation - the City Council designated for redevelopment the 12-story Sutter Office Center and the block on which it stands.”

“This year, as the housing market has collapsed across the city, officials have increased plans for downtown housing, considering reduced fees and other rewards for those who build downtown. Once the market recovers, the city will be prepared for it, city officials said.”

The Times Delta. “Real estate agents will throw open the doors to their for-sale properties Sunday as part of Tulare County’s first Open House Extravaganza. One goal will be to remind would-be buyers that the housing slowdown means lower prices.”

“‘We’re trying to put a positive spin on the housing market,’ said Gaylynn Heitzig, president of the event’s sponsor, the Tulare County Association of Realtors.”

“‘Our housing market has obviously fallen off and total sales per month are off by about 50 percent,’ said Jeremy Garcia, who is chairman of the association’s MLS. ‘But it’s relatively strong in comparison to the rest of the state.’”

The Tribune. “An increasing number of San Luis Obispo County residents are losing their homes as foreclosure activity continued to ratchet higher during September, according to data from All American Foreclosure Service.”

“Lenders sent county homeowners 859 notices of default —the first step in the foreclosure process—this year between January and September, including 101 notices last month. In 2006, 382 default notices were sent during the first nine months of the year.”

“Meanwhile, 223 trustee’s deeds—the final step in the foreclosure process when the owner loses the home—were recorded through the end of September. That’s more than five times the activity in the same period last year (39) and three times the full-year activity in both 2005 and 2006.”

“Don Vaughn, the owner of All American Foreclosure Service, expects foreclosure activity to continue at a similar pace into next year.”

The Independent Journal. “The number of foreclosures is rising in Marin, with defaults almost quadrupling in September over a year ago, but the number of properties in distress remains relatively small. The same isn’t true for counties like Alameda and Contra Costa, where the numbers are significant.”

“Realty Trac reported 70 default notices were issued in Marin in September, up from 23 in September 2006. Notices of foreclosure auction were sent to 10 households in September, up from one last year. Five Marin homes were repossessed by banks in September, compared with one last year.”

“In the Bay Area, 4,974 default notices were issued compared with 1,962 in September 2006. Notices of foreclosure auction were sent to 1,635 homes, up from 357 in September last year. Banks repossessed 1,017 homes, up from 95 in September 2006.”

“Valerie Castellana, president of the Marin Association of Realtors, said she expects to see increases in defaults and foreclosures in Marin but added, ‘We are blessed to have the default and foreclosure numbers so low compared to other Bay Area counties.’”

The Sacramento Business Journal. “Sacramento’s new-home prices have rolled back to where they were in spring 2004, according to new-home analyst The Gregory Group, and they’re predicted to keep dropping before there’s any recovery.”

“But lower prices haven’t attracted buyers. Sales during the previous quarter also fell to their lowest level in three years.”

“‘Prices are down another 3 percent over the last quarter. Right now, we’re a little above 2003 levels. We’re predicting prices will be there by the end of the year,’ Gregory Group founder Greg Paquin said.”

“New-home communities are now selling property at an average rate of about one home every three weeks. Paquin said he’s talked with builders who say they can hold out for the next six to nine months at that rate, but the slump is expected to last at least until the end of 2008.”

“Builders have already been forced to lower prices to what they were when Janet Jackson had a ‘wardrobe malfunction.’ They’re hoping they don’t have to turn back the clock much further.”

A report from the Arizona Republic. “A Chandler man slashed his price by $60,000 to sell his home so he and his wife could move to Ahwatukee. An east Mesa women accepted about $25,000 less than her original asking price even after installing carpet, remodeling a bathroom, upgrading the swimming pool and adding a $7,000 hot tub and a $2,000 shed.”

“Their tactics weren’t extraordinary in the ongoing housing downturn, where prices are falling by double-digit percentages in some cases. ‘Realtors need to have a discussion with sellers because appraisal value and market value are two different things now,’ said Debi Gotlieb, a residential-real-estate agent.”

“In nearly every ZIP code in the Southeast Valley, median home prices fell on a percentage basis over the past year, according to Information Market. The biggest percentage drop was 19.4 percent in the 85297 ZIP code in Gilbert. Another Gilbert ZIP, 85296, saw a 15.2 percent drop.”

“Susan Estes, an east Mesa resident, was among those in 85208 who saw her home value fall by 8.1 percent over the past year in her area, making it hard for Estes and her husband to sell their 1,589-square-foot, four-bedroom, two-bath home.”

“Estes and her husband put their home on the market in December, took it off for one day in June and put it back on the next day. It was expected to close Friday, 270 days after it went on the market.”

“She originally asked $255,000 for it, dropped the price to $240,000 and sold it for $229,500.”

“The deal came after Estes sunk $7,000 into a hot tub, $2,000 into a shed and thousands more into remodeling. ‘And we’re making $5,000 off the sale,’ she said.”

“Some real estate agents argue that home prices have been inflated for so long that a market correction is overdue. ‘I had a family that couldn’t accept an offer, but as the market continues to decline a little bit, they probably wish they had,’ said Cindi Dewine-Barebo, a residential real estate agent specializing in the Southeast Valley.”

“For Gary Brown, selling his two-story home in Chandler was a chore that he and his wife were anxious to finish. They put their 3,000-square-foot home near Ray and Rural roads on the market last Octoberfor $520,000 and sold it, twice.”

“The first deal fell through because it was contingent on the buyers selling their home, and that sale fell apart. After nine months of agent showings and open houses, the Browns sold the home in July for $60,000 less than their original asking price.”

“Brown blames himself for not following the advice of his real estate agent, Gotlieb, who urged him to price the house at $480,000. ‘You know, you get delusions of grandeur,’ he said.”

The Arizona Daily Star. “The slowdown in Tucson’s new-home market is far from over and may not turn around until 2010, a major local developer said at a conference.”

“‘We’re going to have to forget about 2008,’ said Don Diamond, chairman of Diamond Ventures. ‘I think 2009 will show the bottom, but not come up from the bottom.’”

“Steve Betts, president and CEO of Tempe-based SunCor Development Co and Diamond said builders were partly at fault for the overproduction of housing, and they expect lenders will shy away from providing builders with funding for large-scale developments. Builders will instead have to work with local development experts to plan future projects, they said.”

“‘We’ve had a lot of corrections because of speculation in the market, and that’s not good,’ Diamond said. ‘This time the builders are the speculators.’”

In Business Las Vegas from Nevada. “The median price of a Las Vegas home in September fell to its lowest point since January 2005 and recorded the biggest one-month decline at nearly 5 percent since the market peaked 15 months ago.”

“The $14,240 price drop to $285,750 in September is $29,250 below the peak of the market of $315,000 in June 2006, according to the latest statistics from the Greater Las Vegas Association of Realtors.”

“‘The price drops are a concern because we have a situation where buyers are very cautious, and sellers are forced, with as much competition as there is out there, to do what they can to move their property,’ said Devin Reiss, the Realtors’ president. ‘It’s typical until buyers feel more confident and there is less competition out there. This is a reality right now.’”

“There were 990 homes sold in September, a drop of nearly 25 percent from August and a 43 percent decline from September 2006. The median price of townhomes and condos also tumbled in September, dropping 8 percent to $175,000.”

“That’s 12.5 percent below the price in September 2006. The number of sales in September fell 25 percent from August and 51 percent from September 2006.”

“The negative numbers reflect the credit crunch taking hold and preventing a large number of buyers from obtaining financing to purchase a home. ‘Without money, this market is going into a freefall,’ said Chris Thornberg, a Los Angeles-based economist who tracks the Las Vegas housing market.”

“Given the foreclosure and high inventory, prices should continue to fall, said Brian Gordon, a principal of Applied Analysis, which tracks the housing market for the Nevada Association of Realtors.”

“‘I think it will continue until there is more of a balance,’ he said. ‘And when you have 40 foreclosures per day, it is difficult not to have downward pressure on prices.’”

“Las Vegas Valley homebuilders have been forced to slash their prices to lure buyers, and the credit crunch has worsened the problem as evidenced by an increasing cancellation rate.” “But the question is, if that’s the case, why don’t builders shut their operations down and wait for the market to rebound?”

“According to some of the analysts monitoring the Las Vegas housing market, builders have essentially done that. Builders are on pace to construct fewer than 21,000 homes by the end of the year, which is 46 percent off a high of 38,782 in 2005. They are also on pace to take out fewer than 15,000 building permits, less than half of the 30,149 issued in 2005.”

“But why not cut back production even further?”

“‘Builders can’t close their doors when sales are going poorly as they need to sell homes even if they are not profitable, said John Burns, a national housing expert. ‘You have interest on loans to pay back and people you have to pay and you have expenses,’ Burns said. ‘They will bring in revenue. Whether they are making money or not, they have to recoup as much as they can to pay down their debt so they can be in great shape to buy land.’”

“An example of what’s happening in the market is with Las Vegas-based private builder Astoria Homes. The company is holding its first sale this weekend in its 12-year history by discounting homes as much as $200,000.”

“Astoria Homes President Tom McCormick said companies like his stand to gain little by shutting down their operations even if they save their supply of land for better conditions.”

“‘We have good people and for us to keep those people, we need to keep selling homes,’ McCormick said. ‘This market will turn around, and when it does, I need quality people.’”

“The bid to build a master-planned development in Jean has stalled as a result of Southern Nevada’s current real estate slump.”

“MGM Mirage and American Nevada Company are partnering to build what has been announced as a master-planned community of single-family homes, condominiums, retail and a locals-style casino on a 166-acre site.”

“‘Very candidly, we’re struggling with what exactly to do there,’ MGM Mirage President Jim Murren said in a recent interview.”

“‘The economics of a lot of the residential development are not there right now,’ Murren said. ‘We’re fortunate that we’re not sitting on inventory like homebuilders are currently. But the pricing umbrella and the cost of construction have created a difficult environment to make residential pencil out right now.’”

The Lahontan Valley News from Nevada. “As local real estate agents wrestle with more homes being on the market because of fewer buyers, three subdivisions in Fallon have had their final plans approved.”

“When Diamond Creek Subdivision, Bighorn Ranch and a condominium complex in north Fallon are completed, the housing market in the city will be more flooded.”

“Bob Getto, of Prudential, Ferguson, & Getto Inc., said Fallon once was once able to attract home buyers from people selling their homes in other areas. The high number of foreclosures and people being unable to sell their homes have stopped prospective buyers from moving to Fallon.”

“‘Buyers generally have to stay where they are at because they cannot sale,’ he said. ‘It’s the law of economics. The more homes that become available results in lower prices.’”

“Getto said he is well aware of the three subdivisions in Fallon where construction has yet to begin. ‘I do not think the time is right,’ he said, mentioning there are already 235 homes on the market. ‘Now is not the time to do new developments.’”

The Sun Sentinel reports from Florida. “The future of historic home builder Levitt and Sons is in doubt as the crumbling housing market drains the company of cash. Fort Lauderdale-based Levitt Corp., the company’s parent, said Friday it plans to take pretax charges of $160 to $170 million as a result of losses on Levitt and Sons’ home-building inventory. The charges are in addition to charges and write-offs of $99 million in prior periods.”

“Levitt and Sons is trying to restructure its outstanding debt, but no long-term agreement has been reached. Without a pact, ‘Levitt and Sons’ viability is uncertain,’ the parent company said.”

“Three weeks ago, Levitt Corp. said it was laying off as many as 200 of its 573 employees. At the time, Levitt Corp. Chairman Alan Levan said prices that some of the builder’s homes were selling for were ‘un-economic and below cost.’”

“Analysts originally expected South Florida’s housing market to improve late this year or next, but now they don’t see a rebound before 2009. ‘The pain here and the depth of the problems are more than anybody anticipated a year and a half ago,’ said Anthony Trella, a home-building consultant in Deerfield Beach.”

“Miami-based housing analyst Lewis Goodkin said he expects new-home prices to drop by 20 percent or more in the coming year from their 2005 peak. ‘Some people have made the statement that the market has already bottomed out,’ Goodkin said. ‘I couldn’t disagree more. We’ve got to get prices down to where true users can afford them.’”

“In retrospect, builders should have started scaling back operations in 2005, said David Levin, a housing consultant in Delray Beach. ‘But it was hard to be thinking like that when you saw everyone making a fortune,’ Levin. ‘You never know where the top and the bottom of the market are until they’re past.’”

The Orlando Sentinel. “Resales of homes and condos in the Orlando area had their worst month in more than 8 1/2 years in September, when they fell 55 percent from a year earlier.”

“It was the worst year-over-year percentage plunge in sales so far in 2007, and the worst on record going back at least a dozen years. And it occurred despite falling prices and concerted efforts by local Realtors to move buyers and sellers to the closing table.”

“Realtors are feeling the pressure to scrape by on ‘crumbs’ until the market picks up again, said David DeLoach, broker in St. Cloud. ‘I’ve still got my lights on — I just paid the light bill,’ DeLoach said. ‘We’re just trying to make it through this. We’re not expecting it to last, because there is pent-up demand from buyers. I know that.’”

“Many buyers, he said, tell him and other Realtors that they don’t want to buy a home too soon and ‘miss out’ should prices continue to decline. ‘But it’s like the stock market,’ DeLoach said. ‘You don’t know if you are buying at the bottom. If you need to buy [a home], stop trying to time the market. That’s what I tell people.’”

“John Fridlington, executive VP of the Florida Association of Realtors, said the housing slump presents an unusual set of circumstances that is testing the industry’s staying power.”

“‘It just takes time,’ Fridlington said. The Orlando-based trade association, with more than 100,000 members statewide, does not have the power to turn the market around. ‘No one does,’ he said.”

The Herald Tribune. “If foreclosures continue at the record pace clocked in August and September, Manatee, Sarasota and Charlotte counties could see more than 1,500 homes taken back by lenders this year.”

“That is an average of nearly 30 homes per week. It is a figure roughly four times the total number of homes seized by lenders in 2006 and would dwarf the 278 the previous year.”

“The 215 repossessions documented by California-based RealtyTrac in September would represent nearly a quarter of the 910 homes that Realtors sold in the whole region during August, the most recent month for which those statistics are available.”

“Another factor has the potential to swell foreclosures this year in this region: the loans made by Bradenton-based Coast Bank to customers of failed builder Construction Compliance Inc.”

“‘Many disgruntled clients of Coast Bank and others, including SunTrust, National City Mortgage and First Florida Bank, may be facing foreclosure over nonpayment for unfinished homes built by Construction Compliance,’ said Sarasota attorney Alan Tannenbaum (who) represents more than 100 former customers of the St. Petersburg-based builder who are suing the bank.”

“If that were to happen, close to 500 homes could be added to the region’s already swollen statistics. ‘There were a large number of investor/speculators, and I suspect many of the foreclosures will fall in that category,’ said Tramm Hudson, a veteran Southwest Florida banker working as a spokesman and adviser for Coast.”

“John Yanchek, the Sarasota attorney who represented Neal Mohamad Husani in his whirlwind real estate deals, has lost a house on Bird Key. On July 12, the circuit court in Sarasota County ruled that Yanchek owed Chase Bank $2.05 million and ordered that the house be sold at public auction.”

“Yanchek’s situation illustrates how a foreclosure can have an impact far beyond the home’s owner. John and Marjorie Meyer live next door, and they have watched the bank-seized property fall into disrepair. ‘They have performed no maintenance in years,’ John Meyer said.”

The Atlanta Journal Constitution from Georgia. “Kevin Esch was in week four of his condo hunt. Was he getting antsy? Not in the least. Esch can take his time. Atlanta is awash in condos.”

“‘At a time when the pace of new development needed to slow, a record 3,050 units were started in the first half of 2007,’ researcher David Haddow said. ‘Atlanta’s intown condominium market has clearly entered the danger zone.’”

“A record 6,000-plus units are under construction, Haddow reported. Enough condos are out there to meet demand for the next 31 months, his figures show. Haddow’s calculations don’t include the projects that have been proposed but not started, such as the two Trump Towers in Midtown.”

“‘It’s the slowest market I’ve ever actually worked in,’ said real estate agent Geoffrey Greene.”

“Market changes caused the glut. In 2004 and 2005, Atlanta enjoyed a run-up in condo sales as intown living grew in popularity and easy credit made home ownership possible for more people. Last year, buyer exuberance began to peter out and sales returned to levels closer to the norm. Condo projects, however, marched on.”

“From mid-2006 to mid-2007, condo sales fell to 2,239 units, sharply off the prior two years, when an average of 4,000 units sold, Haddow reported.”

“Gigi Giannoni, president of Evolv real estate service, said one reason for the downturn is that investors who had hoped to rent and sell condos lost confidence and fled the market. ‘A lot of developers ran into that problem, that investors just decided to pull out,’ Giannoni said. ‘Under-contract condos went empty.’”

“Coro Realty Advisors switched to apartments for its Buckhead Place project on Peachtree Road. Wood Partners announced a similar switch for a tower at The Streets of Buckhead site. Kim King Associates dropped plans to build condos atop the Hotel Palomar, now under construction in Midtown.”

“‘It’s not that they don’t want to buy,’ Mark Randall, a director with Wood Partners, said about condo hunters. ‘They’re scared to buy.’”

“Randall said he’s been trying to bat down rumors that the Trump Towers project, which Wood is shepherding, is gasping. ‘I can tell you the way I’m writing checks right now, it’s not dead,’ he said. ‘We continue to sell units. We will get started because we’re Trump.’”

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