The Housing Bubble

Marketplace reports from California. “Tess Vigeland tours the wasteland of foreclosed homes near Stockton, California, and meets a family that’s resorted to squatting in their own home. Vigeland: ‘Dan Sinclair’s a 43-year-old systems analyst who lives in Patterson with his wife Esmeralda and their three small children.’”

“We were heading out on a walk around his neighborhood. Dan wanted to show me just how many homes were for sale or simply abandoned. Sinclair: ‘All right, so here’s a house you can see is in disrepair. I mean, it’s not bad, but their lawn is not mowed. That’s one of the signs is when the lawn goes dead, you know that people aren’t living there anymore.’”

“We only had to go three houses before finding another dried-up lawn with a sign that said ‘bank-owned.’ As we rounded a corner, the Sinclairs’ neighbors got up from their front porch and asked what we were doing. Larry and Kathy Fiddler have lived here since the development went up four years ago.”

“Larry Fiddler: ‘It’s a shadow of its former self, really. Everybody’s gone just about but five of us.’”

“Vigeland: ‘What’s happened to your home value?’ Fiddler: ‘It’s gone down probably 35 or 40 percent.’ For a while he and Kathy mowed the lawns of nearby empty houses… until there were too many. ‘Fiddler: ‘Well, that one there just recently… I think they vacated it.’”

“Vigeland: ‘Are these foreclosure here?’ Fiddler: ‘That one is, that one is, this one next door, that one there, so yeah, we’re pretty much surrounded.’ Kathy Fiddler: ‘Kind of a little ghost town… little ghost street.’”

“We continued on to the next ghost street where the Sinclair’s house is. They bought their house three years ago. It’s 3,600 square feet, including a four-car garage and a pool. Their purchase price: $440,000.”

“Sinclair: ‘But the prices kept going up. At one time, our house was worth over $600,000. In fact, a model just like this they were asking $699,000 — and now things have entirely collapsed.”

“A similar house down the street is already in foreclosure and the bank is entertaining offers for under $200,000.”

“The Sinclairs stopped paying their mortgage in October when the payment jumped from $3,000 a month to $4,000. Now they’re basically squatting in their own home, living there for free. Sinclair: ‘We had to start making some hard choices, which included going into foreclosure on our house and kind of starting again.’”

“Sinclair: ‘We would do it if the equity was there, but in a case where we’re already so behind… Imagine that for five years, say, we’re gonna pay four grand a month and then we’re just gonna be back up at what we bought the house for. We feel like we’re throwing away money.’”

The Bakersfield Californian. “By one measure, you could say about $2.1 million worth of Kern County mortgages vanished March 27. A similar amount could be disappearing every business day as the real estate market grinds back to solid ground.”

“The $2.1 million figure comes from a Californian survey of foreclosed properties sold back to the market on a recent random day: Thursday, March 27. Sales of 16 bank-owned homes recorded that day totaled more than $3.3 million, property records show.”

“Failed mortgages made against the 16 properties — all drawn up in 2005 and 2006, totaled more than $5.4 million, The Californian’s survey found.”

The Fresno Bee. “Fresno’s mosquito fighters are getting an early start this year — and they’re already finding their work is cut out for them, in part because there are so many neglected swimming pools.”

“Home foreclosures and unsold houses seem to be the main reason for the increasing number of so-called ‘green pools,’said David Farley, manager of the Fresno Mosquito and Vector Control District.”

“Farley’s district already has identified more than 1,000 such pools this season, a jump over the 650 identified last year, he said. In a normal year, the district may have tracked down 200 to 300 neglected pools, Farley said.”

“‘It’s just overwhelming, and new ones every day,’ said Farley. ‘I don’t know what percentage we have, but that may only be half.’”

From Business Week. “The crowd of 2,000 people who showed up for a big sale of foreclosed real estate on Mar. 16 at the Los Angeles Convention Center. Auctioneer Jeff Stokes got the crowd warmed up, asking attendees to raise their yellow bidding paddles—

“Look at that, a sea of yellow’ and exhorting: ‘Who came here to buy some property today?’”

“The event’s sponsor sold 119 properties in four hours—nearly one house every two minutes. ‘With so much inventory on the market and other builders discounting, it puts everyone in a bind,’ says builder Dennis Freeman, who auctioned 42 new condos in Palm Springs at an event run by Kennedy Wilson on Mar. 15.”

“Want a three-bedroom ranch in Bakersfield, Calif.? A duplex in San Diego? Homes there had been foreclosed on by lenders such as Citibank and Wachovia. Several of these lenders had booths on site to offer loans to buyers.”

“For folks used to bubble pricing, there were some surprisingly deep discounts. A four-bedroom house in Palm Springs that had previously sold for $1.2 million went for $625,000. A two-bedroom cottage in Los Angeles’ trendy Silver Lake neighborhood that had traded hands two years ago for $887,000 got picked up for $285,000.”

“Edwin Beeks, retired from the U.S. Navy after being wounded in Iraq, picked up a four-bedroom ranch house in Lancaster, Calif., with a bid of $95,000. The previous owner paid $255,000 in 2005, borrowing 95% of the purchase price from a subprime lender.”

The San Francisco Chronicle. “The economy also lost 67,000 more jobs than originally estimated in January and February, bringing the first-quarter total to 232,000, the Labor Department report said Friday.”

“Seventy-two percent of Californians said the state is in recession, and more than half believe it is moderate or serious, according to a poll by the Public Policy Institute of California released last month. Pessimism over the state’s economy is at it highest point since the organization began the survey a decade ago.”

“‘Recession? Phooey,’ said Rebecca Robins of Oakland, who routinely hears stories about lost homes and jobs from clients at her veterinary clinic. ‘If we don’t slip into a full-blown depression, we are going to be very, very lucky.’”

“On the other hand, Jason Bennett of San Francisco said that while job losses are unfortunate, the current unemployment rate would have been enviable during much of the 1980s.”

“‘Much of the news has been (about) overleveraged companies and individuals, and this pain is primarily (happening to) those that overspent and undersaved,’ said Bennett, who works in the retail industry. ‘Once we shake it out, we’ll be in a much healthier position.’”

The LA Times. “It used to be a high point of Goldy Anthony’s life. Every six weeks or so, as a kind of personal morale booster, she and a group of girlfriends would make appointments to see a Beverly Hills plastic surgeon for little touch-ups. He was ‘an artist’ with Botox and Juvederm, she said.”

“Afterward, in a carefree mood, the ladies would dine at a popular restaurant on the Sunset Strip.”

“No more. The sub-prime loan crisis, the housing slump and the general decline of the economy have claimed another covey of victims. Anthony is in the real estate business, and under current conditions, the cosmetic treatments — at $1,800 or more a pop — can no longer be squeezed into her budget. It’s the same with others in the group.”

“‘We used to make appointments together,’ Anthony said. ‘Then they started saying, ‘I can’t go next week.’ People didn’t have the money, but they were ashamed to tell you.’”

“‘I would rather have Botox than go out to dinner, but it’s just gotten so bad,’ said Anthony, 41, who is looking for a job since her career in the mortgage business went sour. She has not had the facial treatments in months.”

“And what’s been happening in Beverly Hills is apparently happening around the country. After years of steady growth, the cosmetic surgery business seems to be going through a rough patch.”

“Cathy Hollingsworth is not in the real estate business; she manages a clothing store. But the 42-year-old mother of two from San Jacinto said she is holding off on $20,000 worth of surgery because she doesn’t think it would be fair to her family in a shaky economy.”

“Her husband’s job with an engineering firm appears to be secure, but the four-bedroom home the family bought 2 1/2 years ago has lost value. On their street in a brand-new subdivision, four or five houses now sit empty.”

“‘If we weren’t upside-down in the house, I probably would take the money out and have it done,’ said Hollingsworth, ‘I’ll have to see how long I can tolerate wearing a girdle.’”

The Orlando Sentinel reports from Florida. “Developer Cameron Kuhn said Thursday that he is all but broke, in the process of swapping property and assets to clear his debt, and will soon be down to just one employee to keep his Orlando-based development business going. ‘There is a clarity in going broke. You find out who your friends are,’ Kuhn told about 70 business people attending a meeting in Orlando.”

“At the height of his expansion in early 2007, he said, he had 70 employees, $650,000 a month in overhead expenses and holdings in Orlando and Jacksonville. He said that when he saw access to secondary-market capital drying up in June, he began cutting costs but could not get ahead of the downturn.”

“The mixed-use office-condo and residential-condo towers were the largest redevelopment project in downtown history. Kuhn said that, once he auctions off items to repay bank debt, he no longer will have any control over what happens there.”

“‘Fixed overhead will eat your lunch. That’s what happened to me,’ he said.”

“From Monday through April 13, auction giant Hudson & Marshall will offer more than 500 foreclosed or bank-owned homes across Florida. About 200 homes will be auctioned in Miami alone. Nearly a hundred more are in the Orlando area, with about 80 others in Tampa.”

“‘Overbuilding and the disproportionate number of foreclosures in Florida compared to other states has severely weakened Florida’s real-estate market,’ principal Dave Webb said in a statement.”

“He said that buyers who were priced out of the market during the boom years can get a deal now because ‘banks don’t want to continue holding these bad mortgages on their balance sheets and are willing to sell them at discounts.’”

The Palm Beach Post. “After unsuccessfully trying to sell his spacious spread west of Boynton Beach for the past six months, Art Espanet decided he had little choice but to cut his price.”

“Discouraged by the lack of interest from buyers, Espanet dropped his listing price from $832,000 to $795,000. It’s not exactly a fire sale, Espanet acknowledges, but he considers $795,000 for a 1.8-acre property that includes a 3,800-square-foot home and a four-car garage a fair price.”

“And the retired carpenter considers a $37,000 discount to his first price a big chunk of change. ‘That’s a lot of money to me,’ Espanet said.”

“‘We’ve coached our owners that they can’t look back,’ said Henry Kaplan, a sales manager at Century 21 Tenace. ‘The only thing that sells a home is price.’”

“‘In today’s market, we are in a price war and a beauty contest,’ said Richard Bass, who owns Keller Williams Realty offices in Boca Raton and Boynton Beach. ‘The seller has to be the best-priced house out there, and they have to be the best-looking house out there.’”

“In hard-hit St. Lucie County, sellers are competing with a flood of foreclosures that lenders are selling at big discounts, said Scott Wingfield, president of the Realtors Association of St. Lucie County.”

“‘There’s still a lot of properties that are priced rather high,’ Wingfield said. ‘But due to the number of foreclosures in our area, sellers who have a need to sell really have no choice but to lower their prices.’”

The Daily Business Review. “It took condo converter Juan Puig little more than a decade to build his fortune. After a seven-hour auction, the developer’s expensive possessions were gone, gone, gone to the highest bidder.”

“The items ranged from a collection of Latin American art works to luxury autos to jewelry. Not everyone in attendance was impressed with Puig’s taste.”

“‘The quality sucks … no way he will get all the money he needs [to pay off creditors,]‘ said Marc Cooper of Miami.” “Ed Waterman recalled the confidence that Puig exuded the day he walked into Waterman’s Motorcar Gallery Vintage Exotics in Fort Lauderdale.”

“‘He had to tell me how successful he was and that if I treated him right, he would do more business with me because he had a lot of money,’ Waterman said. ‘But I guess his fortune turned on him soon after.’”

From TC Palm. “The Sunshine State led the nation in mortgage fraud in 2007. Florida’s ranking — the second consecutive year it topped the mortgage fraud list — comes from the Mortgage Asset Research Institute, in its report to the Mortgage Bankers Association.”

“‘It’s sloppy work by the title companies,’ said Steven Allender, a Cocoa Beach-based real estate attorney. ‘When the real estate market was buzzing, some of these title companies offered loans with no documents required.’”

“‘I hate to pick on our brethren in South Florida, but Miami is notorious for this,’ Allender said.”

The News Press. “Natalia Lage said she and her family have found the good life in Cape Coral. She described the neighborhood as a close-knit one struck by a trend that is scattering friends to the four winds.”

“‘A lot of people are moving now, a lot of people are doing short sales,’ she said. ‘I’m sad they’re moving.’”

“Realtors said northwest Cape Coral has been especially hard-hit by short sales and foreclosures, particularly inside the confines of U.S. Census tract 102.01. Cindy Roper, a real estate agent with Sellstate Achievers in Fort Myers, said she has been encountering a lot of short sales in the tract.”

“‘There was a lot of vacant land there and a lot of people built on speculation, hoping to make some money off of it,’ she said. ‘But instead, the market turned. You had a lot of construction workers out there and they were able to purchase a newer home, 2000 and up, and of course, a lot of them lost their jobs. It’s been a spiral-down effect for everyone.’”

“Roper is the listing agent for a home just a few doors away from Lage. The bank holding the mortgage is reviewing a short-sale purchase offer for the three-bedroom, two-bathroom home with a pool and a two-car garage, she said.”

“The asking price was $239,000 when the house, built in 2001, hit the market last October, but now stands at $138,000, she said.”

The St Petersburg Times. “In a cobalt blue Bentley that he bragged once belonged to boxer Mike Tyson, Marty Donovan looked the part of a superstar real estate agent. The Chicago native racked up dozens of home sales between 2004 and 2007, most in a single neighborhood, Clearwater’s Island Estates. His $40-million in annual sales placed him at the top of heap.”

“‘I was living in la-la land in Island Estates,’ Donovan says now. ‘I even did tours in a pimped-out golf cart. People loved it. It was island living.’”

“Island living isn’t so sweet anymore. And a lot of residents single out Donovan’s business dealings for ruining their neighborhood. Of the 36 houses in some stage of foreclosure in Island Estates, at least a quarter were owned, listed or handled by the 44-year-old Realtor.”

“Prices have dwindled more than 45 percent since 2006, nearly double the decline of the Tampa Bay area market in the same period. Sale prices on the island averaged $1.25-million two years ago. Among the homes under contract this month, the average price is $670,000.”

“Critics have distributed anti-Marty flyers. Others bray for his punishment, including suggestions he be tarred and feathered. When critics describe Donovan’s prominent role in inflating property values — and abetting their subsequent collapse — they point to the Realtor’s unusual shopping spree in the spring and summer of 2006.”

“A typical purchase was the house at 213 Leeward Island. Listed for $998,000 by an investor who’d bought it two years earlier for $530,000, Donovan bought the 50-year-old, 1,900-square-foot house for the recorded price of $1.3-million.”

“The owner got his $998,000. Almost all the rest of the loan money was kicked back to Donovan’s business partners, allegedly to make repairs on the house. But within less than a year, Donovan stopped making monthly payments. Promised renovations never materialized and no one can account for the money supposedly borrowed for that purpose.”

“M&T Bank foreclosed and marked down the house for quick sale this year. The sale price: $451,000.”

“‘Homes kept selling that I knew weren’t even worth the price of the ones I had. I just kept wondering what the hell had gone wrong,’ longtime Island Estates Realtor Bill King said of Donovan’s deals.”

“Donovan left town in December, after the banks initiated foreclosure against all six of his remaining properties, valued at more than $7-million. He’s living in Lynchburg, Va., to ‘clear my head a little bit.’”

“Donovan insists all he’s guilty of is greed, stupidity and blindness. He trusted colleagues whom he shouldn’t have trusted. He wanted to become a millionaire the easy way. He views himself as a whipping boy for a housing market few thought would collapse.”

“‘The market controls itself. No one controls it,’ Donovan said. ‘I do feel bad about prices going down. It does make me sick. I do not revel in it at all. I’m in the same boat as they are.’”

“Donovan said money borrowed in his name totalling more than $1-million went into an account for Shorefront Ventures LLC, controlled by his friend Chris Malcom. It vanished. ‘I swear on the Holy Bible I didn’t get any money. The only thing I’m guilty of is complete stupidity,’ Donovan said.”

“Though Donovan’s deals weren’t the only bloated transactions on Island Estates, they were more numerous and conspicuous. Benchmarks set by his sales and purchases inflated residents’ property tax bills and polluted real estate data. People confident they were sitting on $1.3-million houses have learned the homes are worth half as much.”

“Donovan, despite claims of poverty, hopes to re-establish himself in the realty business — if the island will have him. ‘I’m scared to go back since everyone hates me,’ he said from Virginia. ‘People love to see other people’s misery. You learn who your real friends are.’”

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