The Housing Bubble

The County Sun reports from California. “Only two houses in the JP Ranch project have been sold, but its developer remains optimistic. Only 300 of the 750 houses planned in JP Ranch have been built, but Mayor John Chlebnik remains optimistic. ‘I don’t know when (the current housing market) will turn around, but it’s not going to last forever,’ he said.”

“Considering the state of the housing market, the development is performing well, said Wayne Simmons, owner of Calimesa-based Simmons Construction. ‘Interest rates are the best they’ve ever been, and prices are as good as they are going to get,’ said Simmons, who has built custom houses in Redlands, Yucaipa and Calimesa.”

“Houses in JP Ranch cost $329,000 to $600,000. ‘If it wasn’t a conflict of interest for me, I would be interested because they’re top-of-the-line,’ Chlebnik said of the homes.”

The Desert Dispatch. “The recent number of foreclosures in the Barstow area has tripled compared to last year and local real estate agents expect to see that number increasing in the next several months.”

“‘A lot of people held on until they realized they just couldn’t hold on anymore,’ said broker Barbara Krommenhoek, who specializes in selling foreclosed properties. ‘If you needed to sell or wanted to sell you already did.’”

“Many of the foreclosures that her firm sells belonged to out-of-town landowners who bought second homes as an investment while real estate prices were at their height in 2006. She said some of those landowners sold properties in Los Angeles and other urban areas where home values rose rapidly.”

“The investors bought homes in Barstow as part of an IRS-allowed property exchange to avoid paying taxes on the gains made from the price appreciation of the original property.”

“‘The market was just going up so fast. They thought they could buy something and turn it around very fast and make a quick $40,000. It was a pretty crazy market for a while,’ she said.”

“Some owners bought several houses in Barstow where prices were lower, but found that renting out the properties does not cover the outstanding loan balances.”

“Carolyn McNamara, a Victorville-based real estate broker who specializes in foreclosures, said that homes across the High Desert are being foreclosed upon, although Barstow faces fewer than Victorville and other urban areas.”

“She said she isn’t sure why the markets are so different, but said it could be because Barstow had fewer new homes than other markets. ‘Barstow’s market is holding much better than ours,’ she said. ‘I’m totally baffled myself.’”

The Valley Voice. “As new home sales continue to move along at a snail’s pace in Tulare County, officials in Visalia and Tulare are seeing fewer applications for new subdivisions as builders work to reduce the number of available lots in the two cities. And, some builders are abandoning planned subdivisions.”

“Ennis Homes just put up its 385-lot subdivision near Tulare for sale. And, it appears the Rancho Sierra 176-lot subdivision at the site of the old Sierra View Golf Course is on indefinite hold.”

“During the boom years of 2003-06, new homes were snatched up practically as fast as the lots could be developed, but today many subdivisions that have tentative approval are still fields and subdivisions that are developed remain mostly vacant.”

“As of the start of this year, there were nearly 11,000 subdivision lots approved in the two cities. Of those, nearly 6,500 are lots in already developed subdivisions. The remaining lots are those in tentative subdivisions. Ben Ennis called that a 10-year supply.”

“Jim Robinson, senior VP with McMillan Homes in Visalia said the sales of new homes have been flat this year and he expects that trend to continue into 2009. ‘Prices are down 25-30 percent. What was $275,000 three to five years ago is $200,000 today,’ he said. ‘I expect us to sell about the same as last year – 600 homes – in the Valley.’”

“Inventory stands at 1,880 in the Visalia MLS. A reason for hope, lenders who own homes are pricing them to sell. Cause of concern – there is plenty of inventory of foreclosed homes yet to come on the market. The web site Realty Trac claims Visalia has 176 homes to be auctioned and 452 bank-owned homes.”

“Sacramento-based homebuilder Reynen and Bardis, which halted new building activity last year in Tulare County, has left at least 13 homes in an unfinished condition for months now, a matter of some concern at the City of Visalia building department as the homes continue to be exposed to winter weather.”

“‘We need to get the builder’s attention on this,’ says chief building official Dennis Lehman of the City of Visalia. ‘If nothing happens, some of those homes might need to be bulldozed.’”

“A similar tale is told in Tulare. Bonnie Simoes, senior planner with the city of Tulare, says Reynen and Bardis has stopped work at is subdivision in Tulare, leaving several homes there unfinished as well.”

“In Visalia, there are half a dozen unfinished homes at the firm’s Houston Ave. subdivision. The sales office for the subdivision, dubbed the Country Club, is closed, the phone number disconnected.”

“‘In some areas our operations have been suspended,’ says Reynen and Bardis spokesperson Michele McCormick who refers to the company troubles as ‘a perfect storm of economic events.’ She says the firm’s financial difficulties are related to overall decline in the housing market nationwide.”

From ABC 30. “That foreclosure crisis is hitting the Valley hard. Dozens of new homes will hit the auction block in Chowchilla this weekend.”

“This three bedroom, two bath home has a starting price of 280-thousand dollars. That’s about 120-thousand dollars less than its previous price. And this is just one of 43 discounted homes that will be up for auction on Sunday.”

“Project manager Ginger Hoggarth says this auction will be very different than those that sell foreclosed homes. ‘They are brand new homes and you do still get the one year warranty the builder would normally offer as well as a walk through.’”

“34 new single family homes and nine luxury homes in this gated community are going up for auction with minimum selling prices starting at just 160-thousand dollars. Ginger Hoggarth: ‘This is the Milano, and it’s also on the lake.’”

“Rhett Winchell: ‘Sales may get back on track, but they may not be as quick as some builders need, so that’s why they’ll still consider the auction. Even though maybe prices have leveled out, they still need to look for something that will sell quickly.’”

“Bob Pardodi, Prospective Buyer: ‘It’s very nice, we looked at them before about a year ago, but we couldn’t sell our house in Modesto at that time, but this has come down some and so has ours, so we might be able to trade. We’ll see.’”

The Associated Press. “The end came in a blink outside the Merced County courthouse. Only six people showed up for the foreclosure auction, Janice Pimentel and her son Nick included. By chance, the Pimentels’ dairy farm was the first property offered.”

“The auctioneer, a young man in aviator sunglasses and blue jeans, read their address and paused for bids. When none came, the Joe T and Janice R Pimentel Dairy Farm, 21 years in the life of the family, officially became the property of its main creditor, a local lender.”

“‘Well,’ Janice Pimentel said, ‘that’s that.’”

“The foreclosure problems in small-town America may be even more widespread than in cities. Mobile and prefab homes make up at least 15 percent of the nation’s rural housing, and three-quarters of them were financed with installment or personal property loans rather than mortgage loans, according to the Housing Assistance Council.”

“When the owners default, it leads to repossession rather than foreclosure, and these defaults are not included in the foreclosure data, said Moises Loza, HAC executive director. ‘It’s happening all over,’ Loza said.”

“Merced County, population 246,000, underwent a housing boom over the past few years that saw developments spring up on what used to be farmland, said Rep. Dennis Cardoza from Merced. Now, in towns like Atwater, housing values have dropped as much as 50 percent, the congressman said.”

“The skeletons of houses where construction halted when the market went bust stand across a development where houses that sold for $400,000 just three years ago are now going begging at half the price.”

“Soon, the Pimentels will take their pets to the modest house Joe’s father left them, about a mile away. The Pimentels doubt their property will ever be a family dairy farm again. Maybe a developer will grab it, Janice said, ‘for when housing grows again in Merced, someday.’”

The Mountain View Voice. “Market conditions and tight money are causing some builders to shut down large housing projects here, despite relatively firm prices and brisk sales of completed homes.”

“At least two large developments have been halted or dropped so far, after the builders were frightened off by negative signs in the housing market. Two others are rumored to face problems.”

“Just east of Highway 237 near the Sunnyvale border is evidence of the trouble. At 505 E. Evelyn Ave., a maze of driveways makes its way around the huge lot but leads up to only four model homes on the corner. The other 147 have yet to be built, and there have been no signs of construction for nearly a year.”

“Dave Best, the project manager at Shea Homes, denied rumors that Shea was having trouble getting bank loans for the project.”

“‘It’s not that we don’t have the money to build it, we just have decided not to put our efforts in that particular project,’ he said. ‘When we determine the market has come back and it makes sense to build, we will continue.’”

The Sacramento Bee. “After all the intellectual assessments and recital of statistics about the subprime loan crisis, a woman from Chicago asked the question on the minds of many people in neighborhoods where so many have lost their homes. She asked the question in a setting far removed from those neighborhoods, at a California conference hosted earlier this week by the Federal Reserve Bank of San Francisco.”

“‘I want to know – how many people are going to jail?’ asked Yevette Boutall, director of a community development fund that works in lower-income neighborhoods of Cook County.”

“‘That’s how angry people are in communities,’ said Boutall. ‘They want to know how many people are going to go to jail, people who misled them and got away with it and earned money on their misery.’”

“In San Francisco at the Fairmont Hotel, Boutall’s question went unanswered for the moment. But it struck a real note about people bearing the consequences of a time when mortgages and home prices went wild.”

“Speakers at the San Francisco Fed conference uniformly estimated that 2 million households will surrender their keys to lenders in the next year or two. That was their prediction despite all the voluntary lender-government agreements, the millions of dollars for new nonprofit loan counselors and the average $40,000 to $70,000 a lender loses with every foreclosure.”

“‘I wish I had better news for you in the short term,’ said Tom Cunningham, director of the risk monitoring and analysis group at the Fed’s San Francisco bank.”

“He called the situation ‘unprecedented. We have never seen this before.’”

“What seemed new at the Fed conference was how few major ideas there are to stop it. Speakers defined the problem, defined proposals to help assure it doesn’t happen again. But they could not be encouraging about solutions.”

“Speakers from the Fed, NeighborWorks America, the Center for Responsible Lending, Colorado Foreclosure Prevention Task Force and JPMorgan Chase talked about proposed legislation at state capitols and in Congress. They detailed efforts to reach out to struggling borrowers. But the big number – 2 million households during the next year or two – didn’t change.”

“The thousands of loan modifications done so far to buy homeowners time represent the easy cases, said Cunningham. The harder work is more ‘problematic.’”

“During questions and answers, Cunningham was asked why former Chairman Alan Greenspan’s Federal Reserve didn’t step in to prevent this meltdown. Fair question, he said.”

“The Fed’s examiners did probe risky loans. But lenders told them the loans commanded high prices from investors, earned profits and had no track record of defaults.”

“‘I’m not going to criticize my colleagues,’ said Cunningham. ‘But in hindsight, I do say we should have questioned some of the assumptions they (lenders) were using and some of the variables they were relying on.’”

“‘But again, it’s difficult to tell bankers to stop doing something when they’re making a huge profit with no losses. You know, we just have to wait for it to crash before you come and tell them what they did was wrong. It sounds nonsensical, but that was reality,’ he said.”

The Dallas Morning News reports from Texas. “In the Dallas-Fort Worth area…at the end of February, about 43,000 homes were for sale in the Realtors’ MLS. That’s up only about 2,000 listings from February 2006. North Dallas and the Park Cities, which have so far seemed bullet-proof to the housing downturn, both saw a 28 percent jump in home listings during the first two months of 2008 compared with the same period of 2007.”

“‘There are 150 houses over $1 million in the Park Cities area, and they are not moving as swiftly,’ said longtime Dallas real estate agent Virginia Cook. ‘There are some speculative houses that are $15 million.’”

“It is unclear how many of the more than 19,000 homes foreclosed on in the Dallas-Fort Worth area last year are still on the market. Also, there are almost 10,000 unsold new houses on the market in North Texas. Some analysts have said builder price cuts on these properties have been a significant drag on the pre-owned home market.”

“During the first two months of 2008, median home prices in North Texas fell 2 percent to $138,000, according to the latest statistics from the North Texas Real Estate Information Systems. That’s down from a peak of about $155,000 last August.”

“For all of 2007, total pre-owned home sales were down about 8 percent last year in North Texas, ending a string of record sales totals.”

“‘The bottom part of the market is pretty overbuilt right now,’ said D’Ann Petersen, a business economist with the Federal Reserve Bank of Dallas. ‘So we have seen some pretty heavy discounts on those as builders try to get that inventory down.’”

The Star Telegram. “North Texas new-home sales during the first three months of the year dropped 31 percent from first quarter 2007, according to figures released Thursday.” “The drop in sales has prompted builders to pull back on construction: Builders started 5,207 homes during the quarter, down 35.3 percent from the 8,053 started in the first three months of 2007 and less than half the 12,370 starts in first quarter 2006, according to the report.”

“Construction this year will be well below the record of nearly 50,000 home starts in 2005 and 2006.”

“‘The Texas market in general I would not necessarily say is strong, but relative to other markets, it is in much better shape,’ said Stephen Bedikian, partner and research director at Real IQ.”

The Pegasus News. “Residential foreclosures continued to rise across North Texas this month, with Denton County’s foreclosure rate 40 percent higher than April of last year, according to recent statistics.”

“April foreclosures rose more sharply in Denton County than any of the other 10 North Texas counties surveyed, leading by at least 17 percent, according to Foreclosure Listing Service, Inc.”

“‘A lot of people went into home ownership who shouldn’t have,’ said Bernard Weinstein, director of the center for economic development and research.”

“Weinstein said many people bought homes in 2006 with ‘teaser’ interest rates. Weinstein said 25 percent of all North Texas loans in 2006 involved such a rate and foreclosures will rise even higher in 2009 when homeowners will face an increased interest rate.”

“Real estate agent Brad McKissack said most foreclosures were in areas of new development along the Highway 380 corridor between Aubrey and Frisco. McKissack said his realty has noticed the foreclosure rate in Denton County since September 2007, but the number of foreclosures in Tarrant and Dallas counties remains higher.”

“‘I still think we will see them in abundance over the next two to three months,’ he said.”

The Amarillo Globe News. “Amarillo’s median home prices rose 11 percent, comparing sales in the fourth quarter of 2006 to the same period in 2007, according to National Association of Realtors data.”

“‘An 11 percent change in a quarter, that could just be a volatility issue,’ Amarillo economist Karr Ingham said, referring to Amarillo’s increase.”

“Better to compare longer trends, the economy watchers agreed. And those show Amarillo has seen smaller - but steady - home price gains, they said.”

“Huh? Smaller gains are better?”

“‘From my standpoint, as a matter of interpretation, I would not care to see 10 or 11 percent increases in home prices, year in and year out, for any sustained level of time,’ Ingham said. ‘And the reason is household incomes aren’t going up that rapidly.’”

“‘Prices going up that fast - and believe me they have in many markets - are the reason they’re crashing now. For home buyers, you have an ever-increasing percentage of your household income going toward your housing expenses. That’s clearly not sustainable over a long period of time,’ he said.”

“Lenders have tightened restrictions everywhere in reaction to the subprime crisis, so buyers shopping for a loan should expect more scrutiny. Builders have reacted by starting fewer speculative homes - those not pre-sold - to reduce the inventory they carry, Texas Panhandle Builders Association Executive Director Lew Bradshaw said.”

“‘I think it’s probably just smart business sense,’ he said. ‘The ones that were building 10, 12 specs at a time, they’re doing five or six, which is smart.’”

The Express News. “The national economic downturn has hit city government. While the effects aren’t fully known, the sluggishness that some label a recession will figure prominently in upcoming discussions about the budget year that starts in the fall.”

“While cities that San Antonio measures itself against face severe budget shortfalls and layoffs, the picture locally is sobering but not nearly as bleak, City Manager Sheryl Sculley said.”

“But she acknowledged that the community’s galloping growth of the past few years, as measured by the Federal Reserve Bank’s Business-Cycle Index, has slowed to a crawl in ways that will affect the 2009 budget.”

“Records show new residential building permits came in 53 percent under what the city had projected for the first quarter of 2008. As a result, city officials revised downward by 40 percent the number of new home construction permits it expects to issue for the year.”

“‘It looks like we went from a 100-yard sprint to a 100-yard jog, but at least we are still moving,’ District 10 Councilman John Clamp said. ‘Our rate of growth has decelerated.’”

“‘San Antonio is holding its position as the national and world economies go into the tank,’ said Trinity University economics professor Richard Butler. ‘We don’t live on an island, isolated from all that. But the ground we are on right now is pretty high.’”

The American Statesman. “Austin-area builders continue to cut back on the construction of homes, with first-quarter starts falling to their lowest levels since 2003. Starts for new homes declined 33 percent to 2,271, compared with first quarter of 2007, according to Residential Strategies Inc.”

“The number of new-home closings dropped 24 percent to 3,125. A similar slowdown is occurring in sales of existing homes, which dropped 10 percent to 1,553 in February, compared with the year-ago period.”

“‘Because of what’s happening nationally, we continue to see the deterioration of the market,’ said Mark Sprague, Austin partner for Residential Strategies. Though ‘we’re hearing about the market slowing down dramatically here, we don’t have a clue compared to the rest of the country. We’re still in our third-best year ever. … But it’s definitely off because of the national mortgage meltdown.’”

“Fewer homes are being built in Central Texas also because cash-strapped large-production national home builders are battling high inventories in other markets and are cutting back even in relatively strong areas such as Austin.”

“‘They’ve cut back across the board,’ said Ben Loftsgaarden, who follows economic trends for Angelou Economics.”

“Plans for an upscale, 1,400-home subdivision near Parmer Lane and the Texas 45 North toll road have been called off because of a national pullback by struggling Dallas-based home builder Centex Homes.”

“Centex has canceled its contract to buy 465 acres of the 750-acre Pearson family ranch, where it planned to spend $275 million to build one of the largest master-planned communities in Central Texas. The Pearson Place project was announced in February.”

“‘It was part of a larger strategic review of the company nationally,’ Centex’s director of strategic and operational marketing, Tara Thomason, said of the decision.”

“Centex isn’t the only company pulling back in Central Texas, which began as early as 2006, said Eldon Rude, local director for residential real estate market researcher Metrostudy.”

“‘The largest public builders are continuing to face significant challenges around the country, especially in California, Nevada, Arizona and Florida,’ Rude said. ‘As a result of that, they are looking to all of their divisions all over the country to take part in their move to conserve funds, and so even in some of the healthier markets, like Austin, they are looking to local divisions to buy less land.’”

“A high-profile arts-themed hotel and condominium project will be the first major project for the long-neglected Waller Creek area of downtown, developers announced Wednesday.”

“The 21c Museum Hotel and 21c Museum Residences, originally planned for Third and Brazos streets downtown, will be built on a new, larger site at East Cesar Chavez and Red River streets, along the banks of the creek.”

“‘I’m drinking the Kool-Aid about the whole Waller Creek area,’ said Steve Poe, CEO of the Poe Companies, which is one of the partners in the project. ‘This is the natural progression for the city. People gravitate towards parks and water, and that’s what this is.’”

“The hotel will be followed by a 49-story condominium tower with 295 residential units, and in the future, a 425,00-square-foot tower with offices and shops or more housing, according to the Poe Companies.”

“The condo tower would rank among the tallest being built or planned amid downtown’s residential building boom. A 55-story condo tower, the Austonian, is under construction at Second Street and Congress Avenue. And local developer Tom Stacy plans a 66-story hotel/condominium tower near Sixth and Brazos streets.”

“Austin City Council Sheryl Cole said the 21c project ‘begins to fulfill the promise that Waller Creek will become a world class destination. It is wonderful to already see a major return on our investment.’”

“‘This is like that proverbial place in Central Park in New York City,’ Poe said. ‘That’s what we’re creating.’”

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