The Housing Bubble

The Santa Cruz Sentinel reports from California. “This year, 380 notices of default have been posted for Santa Cruz County property owners behind on their mortgage payments. That’s double the number at this time in 2007 and more than was issued in all of 2005. Already, 130 homes have been sold at foreclosure sales this year, compared to 29 at this time in 2007. William Purdy, a Soquel real estate attorney, sees the economy spiraling downward.”

“‘Two or three people a day come in to see us about their real estate investments going sour,’ he said. ‘Homes with $700,000 to $800,000 debt are worth only $500,000. When the market turns and you’re leveraged to the max, you have a pocketful of sand.’”

“‘I told you last year there was a tidal wave coming,’ said Purdy. ‘It’s wave after wave. People are flocking to bankruptcy court.’”

“One example he cited: A salesman with a six-figure income who earned nothing in January and February.”

“‘It’s like watching a million people handcuffed,’ Purdy said. ‘You see some fall into the water and drown. You notice some of the ones drowning are pulling others off the boat. Then you notice your handcuffs and you’re going to be in the water.’”

The Contra Costa Times. “Adjusted for seasonal changes, the East Bay lost 100 jobs in February. That came on top of a January loss of 5,300 jobs, also seasonally adjusted, the Employment Development Department reported.”

“A widening array of housing and mortgage woes have descended on the East Bay with a vengeance.”

“‘The East Bay is seeing the effect of the housing market,’ said Jon Haveman, a partner and economist Beacon Economics. ‘Housing permeates into all the other sectors of the economy.’”

“Some industries linked directly to housing have suffered job losses over the last several months. But appears the housing difficulties are no longer confined to residential real estate. ‘You certainly are having continued problems in construction and finance that are related to housing,’ Haveman said. ‘But now we are seeing offshoots into other sectors of the economy.’”

“Jeff Michael, director of the Stockton-based Business Forecast Center at University of the Pacific, said residents of the area who have endured the evaporation of much of the equity in their homes may have changed their spending habits.”

“‘Spending was pushed up during the housing boom as people tapped their home equity lines and bought cars, big TV sets, and took vacations,’ Michael said. ‘People may be cutting back a little bit as they realize their house is worth less.’”

The San Francisco Chronicle. “San Francisco city officials have expected to be short hundreds of millions of dollars for next year’s budget, but they will have to cut even more, according to a report released Friday by three City Hall budgeting offices.”

“Mayor Gavin Newsom said he was ready to take the political heat for cuts in the number of workers and in programs and services. ‘I don’t want to have to walk down the road that Vallejo walked down,’ said Newsom, referring to the Solano County city facing bankruptcy.”

The Orange County Register. “Orange County’s job market remained weak in February, and economists say there’s no turnaround in sight. According to figures released Friday by the state’s Employment Development Department, local employers shed 21,800 jobs in the 12 months through February.”

“The biggest loser in the past 12 months is — no surprise — the financial activities sector. Over that period, 18,500 finance related jobs were lost in Orange County. Credit intermediation, or lending, jobs accounted for 75 percent of that drop, a loss of 13,800 jobs.”

“Esmael Adibi, an economist at Chapman University in Orange, expressed doubt that the state would find ready buyers for its bonds given the current turmoil in the credit markets. With the state facing a $14 billion budget deficit, ‘the Wall Street firms are going to ask, ‘Where are you going to get the money to pay?’ he said.”

The Sacramento Bee. “Rancho Cordova-based home builder Reynen & Bardis Communities Inc. and a dozen related entities owe more than $1.9 million in late property taxes and penalties, Sacramento County property tax records show.”

“The taxes, which were due in December, are the latest fallout from the real estate downturn and one that has sent a ripple through the city of Elk Grove. And, if the April property tax payments are missed as well, the city response could be swift, prompting an accelerated property foreclosure.”

“Observers blamed the economy for the plight of the cash-strapped company, as well as that of other builders in similar fiscal straits.”

“‘People are talking about whether we’re in a recession,’ said John Hodgson, project manager for Elk Grove’s 1,900-acre Laguna Ridge planning area, where Reynen & Bardis entities have large holdings. ‘The home-building industry is not in a recession. It’s in a depression.’”

“‘It’s a perfect storm of very unfortunate economic events that no one could have possibly predicted,’ said Michele McCormick, spokeswoman for Reynen & Bardis Communities.”

“Hodgson, who represents 18 owners that control 90 percent of Laguna Ridge acreage, is disheartened. ‘It’s kind of sad when you go out there and you can see (unobstructed) a mile and a half,’ he said. ‘There are beautiful roads, beautiful parks and (virtually) no homes.’”

The Union. “Bill and Susan Ross’ Grass Valley housing development was set to be sold at auction on the courthouse steps Thursday, but a last-minute house sale is giving them another chance to hang onto their investment.”

“Now the auction will be held on April 3 at the same venue, the foreclosure agent said.”

“As many as 15 prospective buyers lost interest, because the project wasn’t completed on time, Tim Peterson, chief credit officer of Citizens Bank, said. By the time the houses were ready for sale, the real estate market had declined, Ross said.”

“‘This is a major investment but I wasn’t banking on it to make a bunch of money off it,’ Ross said. ‘I just wanted to do something good for the community.’”

“Renter Derek Ackley criticized the project’s design. He said Wednesday that he ‘wouldn’t buy a house here. It’s like an apartment.’”

The LA Downtown News. “Is the touted renaissance of Downtown Los Angeles falling back into the dark ages, a victim of the recently reported downturn in sales and rentals?”

“I believe there is no housing crisis. The demand for housing Downtown and across Southern California remains high. The population keeps growing and families keep being formed. The very real crisis that exists is in the province of housing pricing and product.”

“‘You don’t have to be a rocket scientist to know your project is in trouble when your client tells you to go back to the drawing board and redesign the condo you were working on for a rental,’ said an architect trading anonymity for candor. ‘And if he doesn’t pay for the redesign, you know you also are in trouble.’”

The Daily Business Review reports from Florida. “Another major West Palm Beach project is facing foreclosure. The developer of the Sail Club at Clear Lake, who has abandoned plans for the 10-acre residential project, was hit with a foreclosure lawsuit late last week seeking more than $19 million. Robert Kohn, Wellington-based president of Homes for America, says the foreclosure is an aftershock from the collapse of USA Capital, a Las Vegas company that represented thousands of investors and lent more than $900 million to developers across the country during the peak of the real estate market.”

“The developer was also the victim of timing. At the height of the residential market, it paid $14.5 million for the aging apartment complex that was to be the site of the Sail Club. The seller had purchased the property about 15 months earlier for $8.08 million.”

“‘The Sail Club project was well received and had the lender not breached its obligations, the project would have preceded long before the Florida real estate market entered its own period of contraction,’ Kohn wrote in (an) e-mail.”

“Kohn stated the ‘the developer invested millions of dollars in this project that are now lost.’ He added ‘the developer maintains cross-claims against the lender and its underlying investors for the loss of business advantage and the costs incurred from this failure to fund.’”

The Wall Street Journal. “The condominium market is about to get worse as many cities brace for a flood of new supply this year, the result of construction started at the height of the housing boom.”

“Developers in Miami and Fort Lauderdale, Fla., are readying nearly 10,000 total new units in a market already struggling with canyons of unsold condos.”

“Lenders of all sizes have $42 billion of condominium debt on their books, according to Foresight Analytics. In just three months — between the third and fourth quarters of last year — the delinquency rate rose to 10% from 5.9%, says the research firm.”

“In Miami, only 57 units in the 118-unit Onyx on the Bay have closed since August 2007, leaving the remaining 61 units in the possession of the developer, according to Miami-Dade County records.”

“The deteriorating economy isn’t helping. ‘When the world goes to hell in a handbasket, the last thing anyone wants to buy is a condo,’ says Cathy Schlegel, a mortgage-loan broker in Fort Worth, Texas.”

“Cancellations are rising, meaning developers may not be able to pay back their banks. Peter Zalewski, founder of Condo Vultures Realty LLC in Miami, says condo developers he is working with are expecting 20% to 40% of buyers who put down deposits to walk away from the deal. In some areas, such as inland buildings and new projects along the river in Miami ‘walkaways’ are expected to be even higher.”

The Miami Herald. “First, it was mortgage lenders who began requiring bigger down payments from borrowers in South Florida, ostensibly making it harder to buy and slowing recovery of the housing sector. Now, mortgage insurers are delivering a new blow to a market that is already down.”

“Over the last several weeks, the nation’s mortgage insurers have been unrolling their own distressed market policies in Miami-Dade and Broward counties, eliminating certain loans from coverage and requiring higher credit scores and more upfront money from borrowers.”

“‘Historically, real estate has been a down-payment game. We are going back to what we’ve grown up with,’ said Mike Pappas, CEO of The Keyes Company.”

“‘People are in foreclosure and their houses are not selling because nobody can get loans to buy them,’ said Alphoncia Lafrance, president of Midas Lending in North Miami.”

“To get loan insurance from MGIC Investment Corp., the country’s largest mortgage insurer, South Florida borrowers with a 620 credit score have to put down 10 percent on loans of $650,000 or less.”

“Milwaukee-based MGIC reported a $1.47 billion-dollar loss in the last three months of 2007. On Monday, PMI Group of Walnut Creek, Calif., reported a fourth-quarter loss of $1 million. And the No. 3 insurer, Radian Group, booked losses of $721 million in the same period.”

“Robert DeLoach, a securities attorney with Fort Lauderdale-based Ledbetter & Associates who closely follows the real estate market, said it’s unfair to make qualified borrowers pay for the excesses of the boom years.”

“‘When I was in my 20s, I got a 95 percent loan. I paid it off. The mortgage insurers are picking on qualified borrowers, even when they have good credit scores, good payment histories and good jobs,’ DeLoach said, ‘It will hurt us, and it’s too bad they singled out South Florida.’”

The Herald News. “Dear Mr. Berko: I own a three-bedroom home in Boca Raton, Fla. It’s appraised at $211,000, and my mortgage is $133,000, so I have $78,000 equity. Because my equity is high, a new mortgage would lower my payments and eliminate the $76 a month for private mortgage insurance, saving me $300 a month. But they won’t let me refinance.”

“My problem is that an ex-friend ruined my credit, and I have a low credit score. I don’t owe money to any company or any person. However, I don’t have any reportable earnings and did not file a tax return in 2003 or 2004 or 2005 or 2006.”

“I have an 18-year-old at home who pays $200 a week, and I made $23,000 last year. I tried to tell this to GMAC, but they told me not to call until I got myself a ‘real job.’”

“I must lower my payments by at least $250. My home insurance has nearly tripled, and my property taxes went to $2,496 from $1,540. It’s my fault that I bought a house, but I believed I would always be able to make the payments. When they gave me a mortgage, they knew that I had very low income.”

“Please explain why GMAC won’t make me a new loan at a lower interest rate, but they will continue the current loan with $76 a month PMI that I don’t need now. I could really use the extra $300 per month.”

“Dear L.R.: Suffice it to say that you can’t refinance due to the lupine greed of Merrill, Citigroup, Bear Stearns, UBS, Bank of America and other brokerages warmly embraced by the New York Stock Exchange. Their feral appetite for money, like greed on speed, has contaminated the low-income mortgage markets.”

“No matter how significant your equity or how compelling it would be for GMAC to refinance — they won’t. GMAC is as flexible as a cement block. Today, banks insist on a credit score above 640, a respectable reportable income and at least two years of prior tax returns.”

“During the past five years, home prices have doubled and some tripled, yet personal income for most Americans has declined…if you are offered $184,500 or even $181,000, jump on it like a duck on a June bug, because prices are still going lower.”

“You might consider leaving the state of Florida. The costs to raise a family and maintain a home are so much less in other states and many residents are now leaving the state.”

“Florida wages are much lower than the national average, Florida’s education system is probably the worst in the nation, the legislature is as crooked as a shillelagh, gridlock is unbearable, the health care system is broken and crime (especially violent crime) is epidemic.”

“The sunshine is wonderful, but it doesn’t put bread on table, pay the mortgage or educate your children.”

The Sun Sentinel. “Trying to make something good out of a bad real estate market, city officials want to buy foreclosed properties and turn them into affordable housing.”

“Officials are proposing to directly buy foreclosed homes at bargain prices, fix them up and resell them to qualified buyers, who would get up to $40,000 in down-payment help. Hallandale Beach officials are still trying to determine how the program would work and who would benefit.”

“City Commissioner Keith London said he knows of three investor-bought homes being foreclosed in his affluent Golden Island Safe Neighborhood District. ‘My question is how we’re going to pick the winners and the losers,’ London said.”

“Hollywood spokeswoman Raelin Storey said her city is considering a similar initiative, but has only a ‘few hundred thousand dollars’ to spend. She said city commissioners would have to approve any purchase and homes could not exceed $200,000.”

“According to public records, there are 1,497 homes scheduled for foreclosure sales in Broward this month. Of that number, 201 are in Fort Lauderdale; 148 in Hollywood; 135 in Miramar; 126 in Pembroke Pines; 125 in Coral Springs; 109 in Pompano Beach; 79 in Margate; and 77 in Sunrise. North Lauderdale has 38 Foreclosure sales.”

“Every week, 500 to 700 people call for foreclosure assistance, according to Sue Fejes, assistant director of the Broward County Housing and Community Development Division. She said most are from Miramar, Pembroke Pines and North Lauderdale.”

“She said the Broward County Housing Authority, which helps homeowners in distress, is ’so backed up, they’re making appointments for June right now.’”

“In Hallandale Beach, 30 homes are listed for foreclosure sale this month. The city had 333 foreclosure sales last year, most in the city’s more affluent eastern section, although the problem is citywide.”

“‘I know one guy, right now he has a Foreclosure and he’s now renting his own house [from the investor who bought it] because he doesn’t want people to know about it,’ said Josh Brown, of northwest Hallandale Beach.”

The Herald Tribune. “While today’s dour economy certainly stings everyone, retired seniors reliant on investments and older Americans on fixed incomes are being especially squeezed in the current bout of inflation.”

“As oil has blown past $100 a barrel this year, gas has risen to around $3.35 a gallon. By contrast, in January 2004, gas cost an average of $1.45 a gallon in Southwest Florida, according to AAA Auto Club South.”

“Regional food prices have risen higher. Further increases are expected throughout 2008, experts predict. The same could be true for homeowners insurance, prices for which since 2004 have surged an average of 49 percent in Florida, according to the state’s Office of Insurance Regulation.”

“Martin and Lorraine Henes know the trend well. They have essentially become prisoners of their waterfront Laurel Lakes home. The couple wants to move back to New Jersey to be closer to children and a granddaughter. They have even put down a $25,000 deposit on a new place in a 55-plus condo community.”

“But until their spacious four-bedroom, three-bath home with the pool, Jacuzzi, fireplace, tall ceilings and rich wood cabinets sells, the Heneses are stuck.”

“‘We can’t afford two places at the same time,’ said Martin Henes, 83. ‘We didn’t figure the market would tank like it did.’”

“They are asking $540,000, still hopeful that they will be able to relocate sometime this summer. Their house has been on the market since last year.”

“The Heneses are not alone, of course. Three years ago, the median sales price of a residence in Sarasota and Manatee counties topped $350,000. Today, the same gauge is $100,000 less, a drop that has left bottom-seekers wary of committing.”

“Some analysts believe the Fed will shave short-term interest rates further by year-end. Although that might stimulate a weakened economy, economists say such a move would be bad news for those who count on interest from CDs, money market funds and other accounts.”

“‘It’s a killer for fixed-income people,’ said David Voigt, chairman of the Bank of Venice.”

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