The Housing Bubble

The Mercury News reports from California. “Bill and Beth Scozzola bought a three-bedroom house in Gilroy at an auction in July, redid everything from the floors to the plumbing to the kitchen sink, then put it on the market in September for $599,950. They’ve had no offers. So this week they parked a brand new, $18,300 Honda Civic in front, and plan to give it to whoever buys their property.”

“‘Everybody’s sitting on the fence,’ waiting for home prices to drop more, said Bill Scozzola, who has been rehabbing and flipping homes for nearly 10 years. ‘To me they’re missing out on good opportunities. I’m willing to wheel and deal on this.’”

“Using incentives and gimmicks has reached the resale market, where sales also have been slow for a couple of years. The seller of a $549,999 home in San Jose’s McKinley neighborhood is offering to loan a buyer 10 percent or more of the home’s purchase price, which could help first-time buyers who lack sufficient down payments.”

“Mary Aguilar, an agent in Monterey County, said incentives and gimmicks are certainly on the rise, but ‘I don’t think it really makes a whole lot of difference’ to getting a property sold, she said.”

The LA Times. “From the local Lamborghini dealership to dry-cleaning shops to office cubicles, the pending sale of Countrywide Financial Corp. prompted a universal question Friday: Now what?”

“The troubled mortgage lender is a major presence in the business and residential corridor that straddles Los Angeles and Ventura counties. More than 600 people work at the headquarters complex in Calabasas, with about 4,500 more a few miles to the northwest in Simi Valley.”

“How many of those jobs will be jettisoned by Bank of America Corp., the North Carolina-based financial giant that has agreed to buy Countrywide for $4.1 billion, is unclear.”

“‘You just ruined my day,’ dry cleaner Doug Tempo said after learning of Countrywide’s takeover. ‘Business is slow enough. I don’t need another hit.’”

“For Countrywide employees, the takeover only deepens the uncertainty they have been dealing with for months. ‘It’s better than being bankrupt,’ said an employee in Simi Valley who asked not to be quoted by name. ‘Ideally, I would have liked it if Countrywide had survived and pulled through.’”

“Jack Kyser, chief economist at the Los Angeles County Economic Development Corp., predicted that ‘a lot of the headquarters staff will disappear.’”

“That would affect not only Countrywide workers who are laid off or transferred but also the various companies that do business with Countrywide, including law firms, print shops and janitorial outfits, Kyser said.”

“The fallout from that could further weaken the area’s wobbly real estate markets, said Delores Conway, director of USC’s Casden Real Estate Economics Forecast. She noted that earlier layoffs at mortgage firms in Orange County dinged home prices there.”

“In the meantime, some retailers hope the area’s residents who don’t rely on Countrywide or Amgen for a paycheck will keep things humming.”

“‘We have a lot of music producers and wealthy real estate investors out here, and they seem to be doing just fine,’ said Jessica Sarmiento, manager at Lamborghini Calabasas, which sold 15 of its super-luxury cars during its first month after opening last summer but only eight last month.”

The Orange County Register. “The O.C. Tax Collector’s final tally of collections for the first installment of property taxes shows a 48% increase in the dollars unpaid vs. the same billing cycle the previous year.”

“Tax Collector Chriss Street says this is an obvious sign ‘how stressed the real estate market is.’ Other signs of homeowners in trouble: mortgage default notices sent out by lenders to tardy mortgage borrowers and actual foreclosures are also on the rise in Orange County.”

“DataQuick has reported that defaults were up 128% in 2007’s first 11 months vs. the previous year; foreclosures soared 568%.”

“Early payments of second installments fell by 5.7% to $268 million. That’s 11.8% of second bills due vs. 13.6% a year ago. Some residents choose to pay property taxes early to boost income tax deductions for the past year.”

“‘People feel they don’t have that kind of money,’ Street says.”

The Press Enterprise. “The Inland region, like much of the nation, could be in for a rough year in terms of growing and retaining retail tenants, analysts say. The culprit is the housing slump, whose ferocity has led retailers to rethink their existing deployment and slow down expansion plans.”

“Economist Jack Kyser said real estate professionals can find an appropriate slogan after their previous inventions, such as ‘It’s great to be alive in 2005,’ or ‘It’ll feel like heaven in 2007,’ but it will have a different tone.”

“‘How much will you hate 2008?’ Kyser said.”

“He said retail will get healthy again after housing does. ‘The key is the health of the home-building industry,’ Kyser said. ‘When does unsold inventory go down? When will mortgages be freed up?’”

“‘Retail development is “basically at a three-year high,’ says Steven Marks, chief of research on real estate investment trusts at Fitch Ratings Inc. ‘And that three-year high is at a point in the economic cycle where it’s probably not the best time to be developing right now.’”

“If consumer spending falls off much more, the retail-property market faces a blood bath, some say. ‘In a recessionary scenario, retail gets killed, absolutely killed,’ says Suzanne Mulvee, senior economist at Property & Portfolio Research.”

“While retail blahs derived from the housing slump are likely for all of Southern California, Kyser said the Inland region is particularly at risk because the region led the state in new-home construction for about the last 12 years.”

“‘A lot of those homes were purchased with subprime loans and are now getting into foreclosure,’ he said.”

The Desert Sun. “One by one, people on the front line of the home mortgage meltdown in Riverside County explained their crises to Sen. Barbara Boxer on Friday.”

“‘The foreclosure crisis is having a dramatic impact across the United States,’ said Boxer. ‘California, which saw some of the greatest increases in housing prices in recent years, is at the epicenter.’”

“So she organized Friday’s roundtable discussion at Riverside City Hall that drew more than 25 housing industry professionals. While she spoke, just around the corner on the Riverside County Courthouse steps, an auctioneer rattled off trust numbers to sell 35 home foreclosures - three in the Coachella Valley.”

“On Monday, the pattern begins anew with 51 more Riverside County sales heading to the auction block - five in La Quinta and Rancho Mirage.”

“After nearly a decade of exponential growth in the housing market, Boxer said the state is confronting one of the biggest financial crises in the nation.”

“Lenny McNeill, an executive with Countrywide Home Loans, assured roundtable attendees, ‘We are not in the homeowner business.’”

“‘One reason I’m here is because we’re concerned about this issue,’ he said, citing the firm’s $16 billion commitment to home preservation in 2008.”

“McNeill added that homeowners also need to take it upon themselves to seek help. ‘A large percent is due to an unwillingness of customers to reach out at the first sign of a problem,’ he said.”

“Cities may see tax dollars shrink and assessed valuation erode. Neighborhood blight - brown lawns, algae-lined pools and potential for crime - has become a concern.”

“The city of Riverside has passed a code requiring lenders to maintain property to city standards. ‘It’s an attempt to encourage lenders to renegotiate, so it does not create blight,’ said Riverside Mayor Pro Tem Frank Schiavone.”

“In Murietta, lenders of unkempt properties can be fined $100 a day up to $100,000. ‘It’s the right thing to do,’ Boxer said. ‘After all, they’ve become homeowners now.’”

Readers suggested a topic on the economic future. “One topic of interest to me is just exactly how the recession/depression is most likely to effect the average person on a day to day basis. I was talking to a friend in Oregon about this last night and she maintains people will still get their houses cleaned, as the average working stiff doesn’t have time to do this (she cleans houses).”

“I said, nope, no go. Same with lots of other services, and she doesn’t believe gas could go down due to lowered demand. I do. Someone want to look ahead in the future one year and describe the average day for the average American?”

Another asked, “I’d like a weekend topic on what a depression would really be like. Personally, I cannot imagine it. I’ve heard all about the original from lots of my elders, but the reality is that they weren’t too affected because they were all farmers that owned their land and they had food a plenty and didn’t use plumbing/electricity.”

“America is much different now. How would people eat? Would there really be “Hoovervilles”? Would everybody’s electricity and water really get shut off? I’d be interested in ‘real-world’ thought experiments about what it would be like.”

One on employment, “How about a weekend topic on local job losses or job gains? The whole thing depends on jobs holding up.”

One on general prices. “Ok so how can Secular Deflation affect America ? I’ve only know Inflation and growth my whole life. Hard to imagine.”

One asked, “Which do you prefer, Inflation or Recession?”

One saw this, “I think Americans will start to save money. With Deflation saving money makes sense though the Government may call it Hoarding and try and tax it. So different than Inflation where we all saw the buy now or get priced out forever mindset.”

Another predicted, “The big difference in a depression this time, as opposed to last time, is that people would have to get used to living without much if any credit, and with much less energy.”

“One aspect would be a huge shrinkage in square footage per person consumed. People would have to move in with relatives. Even if the purchase price of housing became dirt cheap, there is still the operating costs to consider. IMO much of the shrinkage in spending would occur in housing.”

“Automobiles would be next. Now matter how high energy prices are, gasoline savings alone will not be enough to help. America might shift from two cars back to one, with carpooling, telecommuting, and bicycle commuting.”

“There will be pressure to allow more mixed use in existing use-separated suburbs, so people can walk to the store. With plenty of people looking for work as peddlers, the milkman and other vendors might make a comeback. Eating out would become less common.”

“The MSM would continue to downsize, gradually replaced by semi-pro bloggers and entertainers with less overhead and less costly lifestyles, with new technologies making this feasible. Colleges and universities would have to cut costs, requiring more teaching from profs, to lower tuition or face losing customers to on-line education.”

“There will be less air travel. Camping might make a comeback. The expansion of domestic servants into the middle class will reverse.”

“And, asset values will deflate relative to goods purchased with work today, reducing the difference in wealth between those with savings and those without.”

The Review Journal. “People in the Las Vegas neighborhood saw all the cameras and trucks and buses and police on the streets Thursday, and they began to trickle out of their houses to find out what was going on. Soon…they got their answer, as New York Sen. Hillary Clinton began walking up the street of low-slung houses near Eastern and Washington avenues.”

“‘I think we’re slipping toward a recession,’ she said. ‘A couple of people that I met on the street, they work in construction. They tell me it’s slowed down.’”

“Clinton and her busload of traveling press moved from there to the popular local Mexican restaurant, where a ’roundtable’ that was actually square passed a microphone around to tell her people’s concerns about the mortgage crisis and foreclosures.”

“In broken English, one woman told Clinton how she wasn’t making money as a broker anymore. ‘I have no income at all,’ she said. ‘So how will I survive?’”

“Choking up with emotion, the woman said, ‘In my neighborhood, there are brand-new homes, but the value is nothing. I’m glad you are here so I can tell you, because you’re going to be the president, I know.’”

The Herald Tribune. “Holiday sales came in below most predictions and retail analysts say things are only going to get worse in 2008. The results were so bad, it had some retail analysts uttering that dreaded word: recession.”

“‘The holiday season was a disaster,’ said Howard Davidowitz, chairman of a national retail consultant based in New York City. ‘As far as 2008, the worst is yet to come. The consumer has the highest debt they’ve ever had, negative savings, and there is tremendous inflation on food and energy. The consumer is under water and getting worse.’”

“In addition the jobless rate has climbed to a two-year high of 5 percent.”

The Bradenton Herald. “Local manufacturing employees are feeling the squeeze of companies reducing their operations or closing facilities entirely.”

“‘Typically, during the month of December, our applications rate drops to one or two a week because people aren’t interested to put in applications and interview,’ said Kirsten Regal, head of human resources for manufacturer Sun Hydraulics. ‘This December, we received on average 30 to 50 applications a week. It was extraordinary.’”

The Atlanta Journal Constitution. “For the fourth consecutive day, people waited in long lines Thursday for a shot at a job at a new Wal-Mart in DeKalb County, pushing the total number of applicants beyond 10,000.”

“That’s four times the entire population of Avondale Estates, the community next to the planned Memorial Drive store.”

“Beginning Monday, after virtually no advertising or any signs, the throngs of hopeful applicants continued to pour into a church converted into a job processing center — all vying for only 350 to 400 available jobs, according to Wal-Mart officials.”

“Kamal Oliver, an employment and training analyst with a county organization that helped facilitate Wal-Mart’s job fair this week, said the turnout dwarfed the numbers of job hunters who applied for a job last year at the Wal-Mart in north DeKalb County.”

“‘This says to me that a lot of people are looking for work,’ he said.”

The Desert Sun. “As the controversial Eden Rock project navigates La Quinta’s city approvals process, officials and residents continue to debate what housing best fits the city’s image.”

“Much of the debate focuses on housing density. When complete, Cordoniz will have 142 two-story homes, at 10 units to the acre. La Quinta permits 16 units per acre in some areas.”

“‘They are an eyesore,’ PGA West resident Cristina Deniel said. ‘The homes are very, very close together.’”

“La Quinta Mayor Don Adolph, who lives at PGA West, had even harsher words for Cordoniz: ‘The houses, my God, they’re on top of each other. It looks like a tenement.’”

“Marylyn Moore, Cordoniz’s sales and marketing director, said the prices ranged from $300,000 to $450,000. ‘With the land costs and developer fees, the only way to make it work was with higher densities,’ Moore said. ‘We determined there wasn’t anything new in La Quinta at this price point.’”

“When Cordoniz came up at this week’s Planning Commission discussion on Eden Rock, Commissioner Paul Quill told a room full of PGA West homeowners he was proud to have approved Cordoniz. La Quinta needed more high-density housing complexes like Cordoniz, he said.”

“Homeowners responded with loud jeers and boos. About half of them left the meeting.”

“Afterwards, Quill said the higher-density designs would allow more people to afford homes in La Quinta. ‘We’re not all loaded,’ he said.”

The Daily Business Review reports from Florida. “The Whitney, a newly built condo development in downtown West Palm Beach, has joined the growing number of developments hit with foreclosure lawsuits. California-based lender iStar FM Loans is seeking to foreclose on about 146 unsold units, or about two-thirds of the 210-unit building, which was completed in mid-2007.”

“Since Nov. 14, no units have closed at the Whitney, according to Palm Beach County public records. Rosalia Picot, the owner of a real estate consulting, sales and marketing firm based in Miami, said, ‘She heard [from brokers and others familiar with the project] the contractor was not getting paid and refused to complete certain parts of the units. And the lender was not getting paid because there were no closings.’”

“‘It’s incredible how slow closings are happening,’ she said. ‘They are just dragging and dragging.’”

“The Whitney started marketing efforts in 2003. Closings started in July. The Edge, a nearby 307-unit project, began closing on sales in August last year. Only about 135 units have closed so far, according to Palm Beach County records. ‘We used to be able to close a project in 2½ months,’ Picot said.”

“About 200 of the 210 units at the Whitney are under contract, said Maribel Alvarez of Altima International, who handled the marketing and sales for the property and lives on a unit she purchased in the development. Of those, 64 have closed, according to county records. Thirty-seven lawsuits from contract holders seeking to get out of contract have been filed.”

Voice of America reports on Florida. “Across America home foreclosures have reached a three-decade high. Here in North Port, Florida…too many homes were built. Many home prices doubled from 2000 to 2005, but they have now come down by as much as 30 percent. Sarasota Herald-Tribune reporter Stephen Frater says the air quickly came out of a speculative bubble.”

“‘There are hundreds of unfinished houses,’ he noted. ‘There are thousands of vacant lots. There is no city center. There are infrastructure issues.’”

“Homeowner Harry Bourne, who lives next to one of the unfinished homes, says the market is dead and he cannot sell. ‘If I wanted to sell it, it would require me to lose, you know, about [$10,000-$15,000]. So, at this moment I’m willing to stay and stick it out,’ he said.”

“Jimmy Claydon, facing foreclosure, says the crisis is getting worse. ‘People owe more than the property is worth,’ he explained. ‘So they’re unable to sell the properties. So they have to stay, or they have to go into foreclosure.’”

The Bradenton Herald from Florida. “As a growing number of homeowners are experiencing the strains of the area’s housing slump, local property appraisers are having to field more reappraisal requests from citizens baffled over their property assessments.”

“‘The one problem that we have this year is that for the first time in anybody’s memory, we actually have a situation where prices are going down,’ said Manatee County Property Appraiser Charles Hackney.”

“While the county has seen an increase in petitions filed, Manatee County Property Appraiser Jim Todora said the biggest increase came from the North Port area, which has been hit hard by the struggling real estate market.”

“‘The biggest increase we had came primarily from one area . . . and the petitions dealt with vacant lots,’ he said. ‘We still have about 50,000 vacant platted lots in the city of North Port. And a lot of people bought those lots during the recent run-up in selling prices.’”

“Since vacant lots do not qualify for a homestead exemption, Todora said many of those property owners are finding themselves in a jam.”

“‘Those individuals are looking at paying taxes on a property they are holding now,’ Todora said. ‘Of course, the market has slowed down and they are unable to sell it as quickly as they would like to. So it is understandable that they would come forward and be very discouraged by the situation that they find themselves in.’”

“One of the biggest issues in bolstering the market is eliminating the excess inventory and getting back to a more normal supply of housing. Builders are finding prospective home buyers have higher expectations and want lower prices. Many are giving them just that.”

“Travel to four of Centex Homes’ Hillsborough communities and find houses starting in the low $120,000.”

“Gibraltar Homes will also have several new models opening in time for the Parade of Homes. and co-owner Albert Sanchez thinks it will bring in even more traffic. ‘New homes are 25 percent less than they were in 2004 and 2005,’ Sanchez said.”

“Lee Wetherington Companies has 15 inventory homes and 10 models for sale at discounted prices. At least two of the models, which started in the $2 million range, have been discounted $300,000.”

“Lakewood Ranch allowed 20 percent reductions in lot prices in its new Country Club East community in an attempt to stimulate sales, Sanchez said. The reduction, which expired in December, didn’t lead to any Gibraltar sales but it did start dialogues with a group of potential buyers.”

“‘Our prices are already considerably lower than they were in 2004 and 2005. The current pricing is historically unprecedented,’ Sanchez said.”

The News Press from Florida. “America’s First Home, an Altamonte Springs-based low-end home builder, has apparently shut down operations in Southwest Florida. The company, which Lee County records show is the owner of 187 parcels in Lee County, was started in 1999.”

“America’s First went from building 92 houses in 1999 statewide to more than 1,000 in 2005, according to the old version of its Web site.”

The Miami Herald. “If you put down money to buy a home from Levitt and Sons before the company went into bankruptcy, you won’t be forced to wait around for the home to get built. But here’s the catch: You may lose some, or even all, of your deposit.”

“Those whose deposit wasn’t escrowed get a lien on the property they were set to buy. However, they will have to wait in line to get paid behind Levitt’s lenders, as unsecured creditors. If there’s no money left after secured creditors are paid, customers would get nothing.”

“‘I’m optimistic we’ll get a small percentage back,’ said Richard Gloor, who along with his wife put down a $54,742 deposit down on a house that cost more than $500,000 in Lake Lanier in Georgia.”

“Gloor didn’t see the need to have the money held in escrow, though he said he wasn’t given the option. ‘I was never worried about it. Levitt has been around since 1947,’ he said.”

“Levitt already has abandoned about 4,000 lots secured by loans from Bank of America and Key Bank. If Thursday’s hearing is any indication, few buyers are interested in closing on homes, many of which have fallen into disrepair since Levitt stopped building last summer. All but one of 26 contracts were canceled.”

“‘I think we’re going to be seeing people rejecting contracts in droves,’ said Robert P. Charbonneau, a Miami lawyer who represents some customers.”

The Charlotte Observer from North Carolina. “Some warned in 2003 that builders were selling too many homes. Too many unqualified buyers were getting mortgages with ballooning interest rates. And housing prices were rising too fast, too high.”

“But Beazer Homes USA, one of the largest and most aggressive builders in Charlotte, didn’t see it that way.”

“‘The so-called housing ‘bubble’ is, in fact, a myth,’ it said in its fiscal 2002 annual report. ‘While many continue to wait for this bubble to burst, we agree with most respected economists that there has never been a national housing bubble in the U.S.’”

“In 2005, Beazer cracked the Fortune 500 and ranked among the 10 biggest homebuilders in the nation. But the good times didn’t last.”

“Led by Scott Thorson, the local branch sought to set a divisional sales record at its fledgling Southern Chase subdivision in Cabarrus County. Home prices started below $80,000, roughly half the Charlotte-area average. The unusually low sales prices were a strategic decision for Beazer, build and sell homes for less.”

“Demand was ‘hot as a match,’ says former sales manager Barry Helms, who sold the first homes there.”

“To beat the division sales record, Helms had limousines ferry buyers to closings assembly-line fashion. ‘We moved three people an hour that day,’ he says.”

“Kelly Miles, a former Beazer builder, arrived in the mid-’90s to work on the Southern Chase neighborhood, the subdivision where the Observer found high foreclosure rates and evidence that Beazer sometimes crossed the line between selling to people who could barely afford homes and selling to people who couldn’t.”

“He remembers the company’s go-go sales ethos. ‘We were told to do whatever it takes to get people in the door,’ he says. Sales goals were met, but housing quality suffered, he says.”

“Beazer was aggressively helping buyers with down payments in some Charlotte-area starter-home subdivisions…The Observer found financial documents provided by four families showed their loans were arranged by Beazer Mortgage based on misstated debts or income.”

“Beazer doubled its market share in Charlotte in 2002 when it bought start-up homebuilder Crossman Communities Inc. ‘We bought into the Kool-Aid,’ says Jonathan Smoke, a former Beazer senior VP. ‘We double-downed … on investing in land to meet demand. There was a lot of belief that it was going to be that way for 10 or 20 years.’”

“Beazer had the highest cancellation rate of all major homebuilders in the fourth quarter of the fiscal year in 2007, when 68 percent of buyers backed out of contracts.”

“Analyst Vicki Bryan…ranked Beazer as most likely to file for Chapter 11 bankruptcy protection among its peers this year, followed by Hovnanian Enterprises and Standard Pacific Homes. All have a presence in the Carolinas. ‘Beazer,’ she says, is ‘on the gurney.’”

Please post off-topic ideas, links and Craigslist finds here.