April 22, 2008

The Big ‘If’ In California

The Contra Costa Times reports from California. “Foreclosures are a third of all home sales in California as the majority of homeowners in default lost their homes in the first quarter of the year. About 68 percent of homeowners in default during the first few months of 2008 lost their homes, typically owing around $11,474 and were about five months behind when their lender started to foreclose, DataQuick reported Tuesday. There were 47,171 homes lost to foreclosure during the first quarter, the highest since DataQuick began recording data in 1988.”

“Last quarter’s total rose 48.9 percent from 31,676 in the previous quarter, and jumped 327.6 percent from 11,032 in first quarter 2007. In the last real estate cycle, trustees deeds, which is when the lender officially forecloses, peaked at 15,418 in third-quarter 1996.”

“Lending institutions sent homeowners 113,676 default notices during the January-to-March period. That was up by 39.4 percent from 81,550 the previous quarter, and up 143.1 percent from 46,760 for first-quarter 2007, the highest since DataQuick began recording defaults in 1992.”

“‘The big ‘if’ right now is whether or not the economy is in recession. If it is, the foreclosure problem could spread beyond the current categories of dicey mortgages, and into mainstream home loans,’ said Marshall Prentice, DataQuick’s president.”

“But some economists say that the economy is already affected. ‘We’re already in a recession,’ said economist Christopher Thornberg. ‘You have falling prices and so many people underwater they realize there’s no point in staying in the home and will walk away.’”

“Last quarter’s default numbers were a record in almost all of the state’s 58 counties. The only exception was Los Angeles County, which was hit hard by the recession of the early 1990s.”

The San Francisco Chronicle. “Foreclosures spiked across the Bay Area and California during the first quarter, rising more than 300 percent as home values continued to fall. Lenders took back 6,579 homes in the nine-county region during the three-month period, up from 1,493 a year ago and 4,573 in the fourth quarter.”

“In an indication that the foreclosures will continue to rise in the months ahead, mortgage defaults, the first step in the process, also climbed across the board from January to March, nearly 150 percent in the region and state. Lending institutions sent Bay Area homeowners 16,398 default notices, up from 6,730 in the year ago period and 12,704 in the preceding quarter, DataQuick said.”

The Sacramento Bee. “Banks repossessed nearly 5,300 homes in the capital region during the first three months of 2008, setting a record and pushing the region’s foreclosure tally to more than 15,300 since the beginning of 2007.”

“The number of home loan defaults also neared 10,000 during the quarter in Amador, Nevada, El Dorado, Placer, Sacramento, Sutter, Yolo and Yuba counties, according to DataQuick.”

“The firm attributed foreclosures in the capital region and statewide to falling home values that have made it impossible for many to refinance or sell their homes to escape financial problems.”

“DataQuick noted that because of falling home prices only about 32 percent of those who default on their home loans are able now to save their homes. Six months ago about half were able to save their homes, the firm reported. As recently as August 2006, DataQuick said 95 percent were able to find solutions outside foreclosure.”

“Clearly the major culprit is free-falling home prices that have many people owing more than their home is worth.”

“‘Looking at the directional trend, we expect foreclosure rates in Sacramento to rise as long as house prices are declining,’ said Mark Fleming, chief economist of First American CoreLogic.”

The Union Tribune. “March was the 36th consecutive month of year-over-year increases for both home foreclosures and notices of default.”

“But DataQuick analyst John Karevoll predicted that so long as San Diego County avoids entering a recession, the rate of homeowners defaulting on their mortgages should start to level off later this year and then begin declining in 2009.”

“‘There are two scenarios,’ he said. ‘Scenario one is that the default activity is a nasty case of indigestion that has to be digested, and once it’s digested, the market will rebalance itself. Scenario number two is where we factor in the recession. If we are in a recession, it’s not indigestion anymore. Then the default acitivty will start to migrate from this pool of at-risk home loans into the more mainstream mortgages.’”

“Looked at on a quarterly basis, foreclosures between January and March of this year continued to surge, rising 60 percent compared to the final quarter of 2007. Year-over-year, the increase was 210 percent, DataQuick reported.”

“Similarly, notices of default, the first step in the foreclosure process, were also up, rising 46 percent last quarter compared to the previous quarter, and 128 percent compared to a year earlier.”

“‘The main factor behind this foreclosure surge remains the decline in home values. Additionally, a lot of the ‘loans-gone-wild’ activity happened in late 2005 and 2006, and that’s working its way through the system,’ said Marshall Prentice, DataQuick’s president.”

The North County Times. “Foreclosure notices surged past home sales during the first quarter in San Diego County, indicating that the local housing market recession will get worse before it gets better.”

“There were 8,975 notices of default in the county in the first quarter, more than 50 percent higher than the 5,888 sales, according to DataQuick.”

“In stark contrast, first quarter home sales a year ago in San Diego County more than doubled the 3,931 notices of default.”

“Mark Goldman, a real estate lecturer at San Diego State University, said the numbers indicate that banks are going to seize more properties this year than they will be able to sell. That addition to the overall housing inventory will depress prices for another year, possibly two, he said.”

“‘You have all the lack of lending programs, plus the reduction in [house] values, plus people making less money, plus four dollars a gallon for gas,’ he said. ‘What is occurring in our economy that is going to turn this around? Not anything that I’m aware of.’”

The Record Searchlight. “Commercial real estate agents like to say that retail follows the rooftops. The rooftops have practically stopped budding.”

“Redding is on track this year to record fewer than 100 housing starts for the first time since 1974. And we’re coming off 2007 when the city issued the fewest single-family-home permits since 1981.”

“Almost on cue, available retail and office space appears to be rising. Just drive around town.”

“What’s more, there are finished strip malls sitting largely vacant. Steve Mungia, commercial relationship manager for Umpqua Bank in Redding, said the eyes don’t deceive. Commercial and office real estate activity in the north state has slowed.”

“‘We’re seeing a little bit of a correction, but it’s less severe than the housing market,’ Mungia said.”

“Redding commercial real estate agent Ken Miller said retail complexes don’t happen without an anchor tenant lined up. ‘With the retail economy slowing, you see anchor tenants pulling back,’ Miller said.”

“When I featured California Espresso Cafe in an April 7 business feature, owner Christine Sullivan was candid about the challenge these tough economic times pose for retailers like herself. But Sullivan, who bought the business in October, gave me every indication that she was going to stick it out.”

“Guess not. Sullivan cut her losses and closed suddenly last week. In an e-mail to customers and friends, Sullivan said her rent went up $600, adding that ‘we seem to just keep putting more money in and not enough is coming out.’”

“Roger Lefebvre, who sold the business to Sullivan, still owns the note but wouldn’t say how much Sullivan owes him. Lefebvre has no plans to reopen. ‘It will cost too much to reopen and try to make it the way the market is going today,’ Lefebvre said.”

The Daily Bulletin. “When you’re at the bottom of the barrel, all you can do is look up, right?”

“At least that’s what Jesse Marron and Joe Rodriguez are doing. It’s no fun jump-starting a business in the middle of a recession, but these guys are crossing their fingers that hard work will pay off in the end.”

“In December, Marron and Rodriguez opened Rialto-based J & J Classics and Air Suspension, a classic car parts dealer and refurbishing/suspension service.”

“Right now, business is erratic. One week things are slow; the next week there’s an uptick, and the two entrepreneurs are trying to not turn down customers.”

“‘Friends that’ve been in this business, they’re used to making good money, and they’re feeling low because we’re in a recession,’ Marron said. ‘But us - we never knew what it was like to make big money. It’s exciting, but scary at times.’”

“‘We asked ourselves what it would take to start this shop,’ said Marron. ‘It takes money, lots of money. I took my 1968 Impala Convertible Super Sport and sold it for $22,000 to a guy from Norway.’”

“Challenges are already putting Marron and Rodriguez to the test. ‘There’s times we ask ourselves, ‘Why did we get into this?’ Marron said.”

The Mercury News. “The 17 brand new cottage-style condos near downtown San Jose were supposed to sell swiftly, especially since they were priced to be affordable to low- and moderate-income people, and the developer offers generous loan programs for first-time buyers.”

“But in the eight months since the for-sale signs went up, only one condominium has sold, even though the developer, non-profit Neighborhood Housing Services Silicon Valley, has cut prices twice.”

“Even non-profit developers who aim to provide affordable housing to the valley’s lower-income residents are getting hammered by conditions in the real estate market.”

“‘No doubt this property would have sold out in four to six months but for the subprime debacle,’ said Ed Moncrief, executive director of the developer and home-buyer assistance organization. ‘We hit the market just as the realization of some gray cloud over the future hit.’”

“Two-bedroom condos at Villa Almendra once priced at $535,000 now are offered at $450,000. The units come with new appliances, two-car garages and granite countertops.”

“But Moncrief’s group is facing stiff competition from others. Developer Barry Swenson Builder, for example, has new studio condos nearby starting at $294,000, and there are single-family houses selling for less than $450,000 in some East Side and South San Jose neighborhoods.”

“Desperate to sell, the non-profit now is willing to accept offers from any buyers, not just those who need the special loan programs. And the group will give away a 2008 Toyota Prius in a random drawing to one of the first eight buyers who close escrow before September.”

“Other affordable-housing developers in the Bay Area are hunting for buyers, too. They’re anxious to raise money to pay back their construction loans and worried about financing future projects.”

“South County Housing last weekend auctioned some of its unsold units at Forest Park, a development in downtown Gilroy. Bids started at $295,000; some townhouses were priced at $519,000 last fall.”

“‘It’s a really tough time,’ said Nancy Wright, a senior project manager for South County Housing. ‘The credit issues are so widespread, everyone is being affected.’”

“The units at Villa Almendra went up for sale in August 2007, just as the credit crunch hit Wall Street and consumers’ confidence plunged. Attendance fell at the non-profit’s once-crowded buyer orientation sessions, and by the holidays the group knew it had a problem.”

“‘It was noticeable from the silence we heard, I guess, in terms of home buyers not being there,’ Moncrief said. ‘They disappeared.’”

“Amy Flores, who paid $590,000 for her three-bedroom condo late last year, is the lone homeowner at Villa Almendra. She’s hoping the non-profit’s efforts to sell other units pays off.”

“‘It would be nice to have neighbors,’ she said.”




Logic Wasn’t Fueling This Craziness

Some housing bubble news from Wall Street and Washington. MarketWatch, “The U.S. housing market weakened slightly in March, as resales of U.S. homes fell, inventories climbed, and prices continued to decline, the National Association of Realtors reported Tuesday. Resales have sunk 19.3% in the past year and are down 33% from the peak in 2005. The median sales price fell 7.7% in the past year to $207,000, the second-largest price decline recorded since 1999.”

“Existing home sales are ’stable yet soft,’ said Lawrence Yun, chief economist for the real estate agents’ trade group.”

“Others said they saw no sign of a bottom in housing. ‘Inventories should be going down,’ said Dan Alpert, a managing director of a fund that buys distressed mortgages.”

From Reuters. “The inventory of homes for sale swelled by 40,000 to 4.06 million homes, or a 9.9 months’ supply at the current sales pace from 9.6 months in February.”

“Of the homes for sale, 18 percent have negative equity and so are either in foreclosure proceedings or headed for a ’short sale’ that will see the lender write off some of the original loan amount. ‘This has been a frustration of our members,’ said Yun. ‘Lenders have been dragging their feet (in approving short sales).’”

“Regionally, existing-home sales in the Northeast are 18.8 percent below March 2007. Existing-home sales in the West are 22.3 percent below a year ago. In the South, existing-home sales are 20.0 percent below March 2007. Existing-home sales in the Midwest are 15.9 percent below a year ago.”

“NAR President Richard F. Gaylord, said there are problems with the implementation of mortgage guidelines. ‘It appears there is some over-reaction on the part of some lenders now in requiring higher downpayment percentages than may be necessary,’ he said.”

The BBC News. “Royal Bank of Scotland, the UK’s second-biggest banking group, announced a write-down of £5.9bn before tax, following its exposure to the credit markets.”

“RBS said it expects additional hits to the value of assets, including the ABN AMRO wholesale business it bought last year, due to the impact of the U.S. subprime mortgage crisis and subsequent credit crunch.”

“The bank, which wrote down assets by 2.4 billion pounds last year, said…it valued below-prime Alt-A mortgages at 50 percent, down from 83 percent.”

From Bloomberg. “Two big regional banks in the United States, SunTrust Banks in Atlanta and Fifth Third Bancorp of Cincinnati, said the real estate slump, especially in Florida, had required them to increase reserves for bad debt.”

“SunTrust raised its provisions for loan losses 10-fold to $560 million because of expected defaults on mortgages, home-equity credit lines and residential construction, it said. Fifth Third increased its reserve to $544 million from $84 million.”

The Street.com. “Todd Appleman never envisioned washing his dishes in the bathtub when he opened a $64,000 home-equity line of credit to renovate his kitchen.”

“But just when he was about to advance a first payment to his contractors — who had just ripped out his cabinets and appliances — Appleman says his lender, Bank of America, froze the line without notice to him.”

“‘People don’t take out a line of equity with the intention of not ever using it. And wouldn’t it be courteous to give your customer a call to tell me about this?’ he says.”

“Manda Hunt of Atlanta says an exemplary payment and credit history didn’t influence her lender’s decision. Hunt opened a home-equity line when she purchased a one-bedroom condominium in Atlanta for $173,000 in 2002.”

“A recent letter she received from Countrywide…explained that she could no longer draw from her home-equity line due to declining real estate values, she says. ‘I was freaking out,’ says Hunt. ‘I wasn’t planning on accessing [the line] but I don’t want to hear that I can’t.’”

“Countrywide now values Hunt’s condominium in the mid-$150,000 range — nearly $20,000 under her purchase price, she says.”

The Associated Press. “Yale University economist Robert Shiller, pioneer of the widely watched Standard & Poor’s/Case-Shiller home price index, said there’s a good chance housing prices will fall further than the 30 percent drop in the historic depression of the 1930s. Home prices nationwide already have dropped 15 percent since their peak in 2006, he said.”

“‘I think there is a scenario that they could be down substantially more,’ Shiller said during a speech at the New Haven Lawn Club.”

“Home prices rose about 85 percent from 1997 to 2006 adjusted for inflation, the biggest national housing boom in U.S. history, Shiller said. ‘Basically we’re in uncharted territory,’ Shiller said. ‘It seems we have developed a speculative culture about housing that never existed on a national basis before.’”

“Many people became convinced that housing prices would increase 10 percent annually, a notion Shiller called crazy.”

“Shiller, who said it’s difficult to forecast prices, endorsed legislation proposed by Sen. Chris Dodd, D-Conn., and Rep. Barney Frank, D-Mass., that would allow the Federal Housing Administration to back as much as $300 billion in mortgages for struggling homeowners.”

From CNN Money. “There are calls for the government to help homeowners at risk of foreclosure. But some experts think a mortgage rescue could cause more problems than it solves.”

“Some think the Dodd-Frank plan will at least slow the decline in home prices. Problem is, that could ultimately be bad news for the economy too. That’s because some think that, as painful as it may be, the best way to fix the housing crisis is for the free market to run its course. After all, lower home prices might actually help stimulate demand again.”

“‘What the market is in the process of doing is bringing home prices back to where they should be by any traditional measure,’ said Barry Ritholtz, CEO of equity research Fusion IQ. ‘If home prices don’t go down, it means newlyweds can’t go out and find a home they can afford.’”

“‘We must work to limit the impact of the housing downturn on the real economy without impeding the completion of the necessary housing correction,’ said Treasury Secretary Henry Paulson in a speech last month.”

“William Wheaton, a professor with the Massachusetts Institute of Technology’s Center for Real Estate, argues many of the homeowners now facing foreclosure could be better off renting the same home at current market prices, rather than trying to refinance the mortgage.”

“‘It’s very popular to say you’re in favor of home ownership, even if it doesn’t make any economic sense,’ he said.”

“Robert Shiller, a Yale economist who has long argued there was a bubble in home prices, thinks the plan will do little to stop the slide in housing prices.”

“Shiller adds that when compared to measures such as rents and household income, housing prices are still out of equilibrium. ‘I’m not sure we can achieve continuing high home prices,’ he said.”

“If he’s right, more borrowers may find themselves owing more than their house is worth, which could add to the number of foreclosures and homes on the market.”

The Herald Tribune from Florida. “If no-money-down was the real estate password for the first half of the 2000s, ‘jingle-mail’ might be the word for rest of it.”

“For 2007, 142 properties out of 6,188 sales were officially tagged as being distressed in the Sarasota MLS for a rate of 2.3 percent. But the number of homes swelled to 8.1 percent in January, 8.7 percent in February and 10 percent last month, says Jose Lopez, a distressed-property specialist who is tracking the phenomenon.”

“Even the incomplete month of April already is higher than that for all of 2007.”

“‘It keeps growing and growing and growing,’ Lopez said. ‘I wouldn’t be surprised if we end up this year at six to seven times the amount of these type of properties that were sold last year.’”

“Adjustable-rate mortgages now resetting and many times pushing up monthly mortgage costs by 35 percent are ‘the thing that is going to continue to spike it up,’ said Budge Huskey.”

“‘As housing values are going up, people are more apt to do everything they can to hold onto their homes,’ said Huskey, whose company runs what is probably the largest management division in the nation for bank-owned properties. ‘There is a behavioral element, too, that in a declining environment, people are less likely to save their property. A lot of people think, ‘Well, there’s nothing I can do.’”

“Lopez is not courting banks for their listings, preferring instead to work with buyers, finding the best deals among homes owned by banks or requiring bank approval because they are worth less than the loan. He then works at making them even better deals by making low-ball offers.”

“‘There are some agents out there saying the bank will forgive up to 10 percent, that any offer has to be 90 percent of what is owed,’ Lopez said. ‘That is absolutely ridiculous. They will do 20 percent with no problem, and I have seen as high as 50 percent.’”

The Star Tribune from Minnesota. “The reckoning inside the Colvins’ four-year-old home is playing out at kitchen tables and corporate boardrooms across Minnesota — and the world.”

“Jon Colvin informed CitiFinancial that he would be unable to make his March mortgage payment, and would probably miss April’s, too. He hoped the news would finally scare the bank into renegotiating a mortgage he can’t afford for a house he can’t sell — and now wishes he had never bought.”

“‘It’s not something I feel proud doing,’ Colvin said of missing the payments. ‘But how else am I going to get the bank’s attention?’”

“By the late 1990s, with the Twin Cities suburbs filling fast, Wright County was a bargain for developers. In sleepy rural communities like St. Michael, land could be had for less than $10,000 an acre, just a quarter of prices closer to the Twin Cities.”

“In Otsego, almost 2,200 units were built during the same period. The county’s average sale price jumped from $180,102 in 2001 to $234,009 in 2007, an increase of 30 percent. In Albertville, the gains were even sharper: 43 percent.”

“‘In 2005, my dog could have sold real estate in Wright County,’ said Dan Frie, a sales agent in Monticello, who has been in the business nearly 30 years. ‘A lot of people thought this was the next big growth market, and they wanted to be part of it.’”

“While Frie blames fraud for exacerbating the problem, many of the mortgages that are in default are held by people who believed — as many did and as the real estate community told them — that real estate doesn’t lose its value.”

“Newly married in 2005, James and Angela O’Hara, 25, fell in love with a tidy two-story townhouse in St. Michael. A real estate agent urged the couple to buy early, noting that other buyers would bid up prices by 5 to 10 percent once the rest of the project became reality.”

“‘They sold the vision as much as the house,’ James said. ‘They said it would be this bustling neighborhood with all these attractions just a block away. We never imagined it would lose value.’”

“Instead of living in a bustling urban village, the O’Haras look out on a field of weeds and townhouses with ‘Bank Owned’ signs posted on their front doors. Several of the townhouses are clad in Tyvek HomeWrap, their brick facades still unfinished.”

“The O’Haras need to move out of their townhouse by next summer, when James, a staff sergeant in the Marine Corps, reports for officer’s training in Virginia. But the couple fear they won’t be able to sell the unit for enough to repay the $190,000 mortgage. ‘It’s become a huge albatross around our neck,’ James said.”

“‘A lot of the prices that people were paying for property in Wright County had no basis in reality,’ said George Schmidt, a real estate agent in Anoka. ‘They were destined for foreclosure.’”

“Jeffrey Schoenwetter, CEO of JMS Homes in Eden Prairie and one of the investors in Martin Farms, said 400 houses didn’t seem excessive when the project was hatched in 2004.”

“‘When you have 10 builders come to you and say, we want to buy 10 lots a year, and then Mr. Builder says, ‘I have five friends that want to come, too, could we have 100 lots?’ Then I said, ‘OK, I’ll develop 100 lots,’ he said.”

“Laurie Karnes, a real estate broker who specializes in selling undeveloped land in the Twin Cities, blames today’s problems on greed and a failure to acknowledge that the good times wouldn’t last forever. ‘Logic would have told you, why would you build there?’ Karnes said of some of the county’s overdeveloped communities. ‘But logic wasn’t fueling this craziness.’”

The Tennessean. “About 47,000 loans, or 42 percent of all the adjustable- rate mortgages in Tennessee, were subprime at the end of last year, according to the Mortgage Bankers Association. Housing counselors in the Nashville area say they’re seeing ARMs for subprime borrowers resetting at up to 13 percent interest.”

“Emerging from bankruptcy three years ago, Marcus Neal seemed an unlikely candidate for a home loan. But that didn’t stop his lender. With no money down, Neal was able to buy his first home, a cozy two-bedroom townhouse in La Vergne, for $89,000 just six months after walking out of U.S. Bankruptcy Court.”

“Neal said a credit counselor whose advice he sought after his bankruptcy steered him to a local real estate agent and said it made sense to buy a home. Neal said he had been living in an apartment complex with a crime problem, and home ownership seemed like a sensible way out.”

“The builder of his new townhome, Ole South Properties, one of the largest builders in Middle Tennessee, lent him $8,994 so he didn’t have to come up with a down payment.”

“Washington Mutual Inc., which financed 90 percent of the purchase price, gave Neal a 9.5 percent interest rate on an adjustable-rate mortgage that would reset after two years, according to the mortgage documents.”

“Neal said he is now several months behind on his mortgage payment after he lost his job as a boiler room operator. Plus, his mortgage reset last year, adding another $100 to his loan payment every month.”

“‘Most subprime loans were done with the thinking that, within the next two years, it would be refinanced into a prime product,’ said Keith Payne, a loan officer at Freeman Webb Mortgage.”

“Payne said he didn’t do many of those loans, telling people to wait a few years and improve their credit instead. ‘But a lot of people were not thinking about … two years down the road. It was one of those things people thought would go on forever, and now they’re finding out, nothing goes on forever,’ he said.”




Floating On The Bottom

The Ahwatukee Foothills News reports from Arizona. “No one says that the Arizona housing market has recovered, but it just may be that the free-fall of values and glacial sales have bottomed out, at least according to some real estate agents and the Arizona State University’s W.P. Carey School of Business. ‘A lot of homes are now priced right, which is helping,’ said Dawn Workman, an Ahwatukee Foothills resident and East Valley real estate agent.”

“For R.G. Argabright, also an East Valley real estate agent, the market is still tough, but he sees some positives with prices holding steady. ‘We may be floating on the bottom, (instead of falling),’ Argabright laughed. ‘The only negative we have is the darn foreclosures.’”

“Workman has done the classic of turning lemons into lemonade, by offering tours of foreclosed properties to generate sales. ‘I’ve been selling a lot of foreclosures lately.’”

“Workman said that it’s not uncommon for a 1,800-square-foot three-bedroom, two-bath home to sell for under $100,000. But financing may still put the brakes on the recovery, if there even is one.”

“Argabright said the days of 100 percent financing are gone and that prospective home buyers need around 5 percent down, or $5,000 for every $100,000 of home, and must have good credit before they can expect a home loan.”

The Arizona Republic. “Home values have dropped about 20 percent Valleywide since the bubble burst over a year ago. Power Ranch in Gilbert is one of the more extreme examples — real estate flippers drove prices for a 4,500-square-foot home as high as $875,000 two years ago. Then came the bust, catching many home flippers short.”

“Ivano Panelli can see a line of for-sale signs blocking the view from his home. ‘This has been for sale for three years, right here,’ he says, pointing at the vacant home next door.”

“Today the bank is selling that home for $479,000. The owners of the home across the street – the very same model – paid $875,000 two years ago.”

“‘The whole subprime crisis is literally melting all over the place,’ says Anthony Sanders, a professor of fiinance and real estate at Arizona State University.”

“Home-building permits in metro Phoenix were flat again in March as the housing market continued to search for a bottom. Last month, 1,278 new-home permits were issued Valley-wide, RL Brown’s Phoenix Housing Market Letter reports.”

“‘We think that the evidence is building that we are seeing the bottom of the new-home market in the metro Phoenix area,’ Brown said.”

The East Valley Tribune from Arizona. “An analysis of 4,754 floor plans shows a 9 percent increase in price over the past four months, while 60 percent saw prices remain unchanged.”

“Some builders raising prices are trying to create a sense of urgency for buyers, said John Fioramonti, senior managing director of Meyers Builder Advisors in Scottsdale. Fioramonti said one developer in north Scottsdale has seen a big jump in foot traffic through the sales office, but people aren’t taking the plunge. They’re waiting for prices to drop further, he said.”

“‘The builders are trying to create a sense of the bottom has been hit,’ he said.”

“The hammering and drilling have stopped, the sales office is shut down and rumors are rampant in homeowner Andrew Kerr’s Maricopa neighborhood. About two weeks ago, financially strapped builder Engle Homes closed its Province sales office and 11 other field offices Valleywide, also removing the communities from its Web site.”

“Now, residents like Kerr worry what will become of their partially finished community. ‘There’s a certain level of frustration and anxiety,’ he said. ‘A lot of people really understand there’s nothing they can do about the situation.’”

“Local industry analysts say the closures are the first sign that a builder could bail. ‘That’s the lifeblood,’ said John Fioramonti. ‘Everything else doesn’t matter if you don’t have sales.’”

“Roughly 880 out of more than 1,500 homes planned at Province were sold as of February, according to the research firm. Valleywide, Engle’s more than 30 communities have been averaging 1.7 sales a month, compared with three to five sales for other builders, Fioramonti said.”

“Engle’s financial troubles aren’t unique in a flagging housing market and economy. Valley Builders have been dumping thousands of home lots to free up cash and placate anxious stockholders.”

“Capital Pacific Homes recently sold 209 lots in Maricopa to a local investor for $4.9 million, according to Business Real Estate Weekly.”

“Province homeowner Linda Demain said she believes Engle has been straightforward and doesn’t listen to the rumors whirling around the neighborhood. Engle has put a lot of time and effort into this project and, hopefully, it will be able to see it through, she said.”

“It doesn’t do any good to worry, she said. ‘Honestly, what choice is there?’ she said. ‘You can’t stay home and brood every day.’”

“Half of all homes sold in Pinal County last month were bank-owned, compared with 37.5 percent in January, according to local analyst RL Brown. In Maricopa County, 22.3 percent of all sales were homes that had been repossessed by lenders.”

“Last year’s wave of foreclosures has only grown in 2008 with thousands of Valley families defaulting on their mortgages every month. Agents say the banks have so many foreclosures and REOs to deal with that it’s sometimes taking months to get a response on a short sale offer.”

The Review Journal from Nevada. “Like many Las Vegas residents in search of a sweet deal on a foreclosed home, Mike Simpson walked away disheartened and discouraged after wasting his time at a recent foreclosure auction.”

“The starting bid for the six-bedroom house on half an acre near Alta Drive and Valley View Boulevard was $219,000. Simpson was prepared to offer $375,000. To his surprise and without prior notice, the home was pulled off the auction block.”

“‘Come to find out somebody made a deal with the bank and the deal fell through,’ Simpson said. ‘I spent 21/2 hours there on a Saturday. Why didn’t they put it on the deletion list when I first walked in?’”

“‘The banks are ready to rock and roll,’ said Dave Webb, CEO of (auction firm) Hudson & Marshall. ‘If it’s a reasonable offer, they’re ready to take it. Now, they’re not idiots. They’re not going to take 40 cents on the dollar…The longer these properties stay on the market, the more motivated they are.’”

“The latest foreclosure statistics from Foreclosures.com showed 6,152 preforeclosure filings for Clark County in March, more than double the 2,813 filings in the same month a year ago.”

“One buyer who requested anonymity said real estate agents are biased in their assessment of auctions because buyers don’t need their services. She was able to buy a Pulte home in Southern Highlands at a Hudson & Marshall auction last year for $278,000, or about $102 a square foot. The bank was cooperative and did not try to ‘jack up the price,’ she said.”

“Her second-choice home also closed escrow at the auction price of $283,500. It had sold a year earlier for about $500,000.”

“Banks that have properties for sale sometimes place ’shills’ in the audience to bid the price up, said Ron Clark, CEOof Rainbow Equity Investments in Oceanside, Calif. ‘Auctions can be a very treacherous place for a novice with a full-time job,’ Clark said. ‘You walk into an arena where you’ve got some slick, sharp operators. There’s all kinds of ways to fleece the guy who’s a novice and thinks all those banks are in trouble.’”

“With foreclosures mounting and the housing market reeling, banks should be ‘humbled’ and welcoming people with open doors, Clark said. ‘They’re not there yet. They will be in six months or a year,’ he said.”

The Las Vegas Business Press from Nevada. “Southern Nevada’s building boom is bust and the foreclosure chickens are home to roost. Some industry experts now wonder if other consequences arising from the valley’s long golden age of construction are also coming back to haunt valley consumers.”

“The number of local construction-defect lawsuits has risen alongside the valley’s population. County officials say that at the height of the building boom some inspectors were doing as many as 70 inspections a day.”

“In response to reports that county building inspectors were conducting as many as 120 inspections a day during 2004 and 2006, Clark County Director of Development Services Ron Lynn said those numbers never got higher than between 60 and 70.”

“‘They might have been given that workload, but they weren’t expected to do all those,’ he said of the 120 figure.”

“‘The problem is when you get to frame inspections, structural inspections, or the roof,’ said construction consultant Neil Opfer. ‘That will take more time.’”

“But even for the least time-consuming inspections, Opfer said the idea that one inspector would face 120 assignments a day stunned him. ‘That blew my mind,” the consultant said. ‘I think it is hard to do 120 a day and even have any type of quality. What’s happening to get those numbers is they are just doing a real spot check.’”

In Business Las Vegas from Nevada. “Maybe this is Las Vegas’ version of the canary in the coal mine when it comes to the commercial real estate market. Last week, NAI Horizon confirmed speculation to In Business Las Vegas that the commercial brokerage has closed its Las Vegas office.”

“Terry Martin-Denning, chief operating officer with NAI Horizon in Phoenix, which oversaw the Las Vegas office, cites the economy as the reason behind the closure. The slowdown started 18 months ago, and there haven’t been enough deals to sustain the operation, and activity continues to trend downward, she says.”

“‘The current investors have fed the beast as much as they can,’ Martin-Denning says. ‘I think we are seeing a lot of shakeout, and no one knows what’s going to happen. There are a lot of uncertainties with the economy. You have seen some title companies that rely on real estate transactions downsizing or closing.’”

“‘We hear disturbing news about the gaming industry, and the latest revenues are down for the first time. Gaming brings people and people need offices. The whole focus of the economic base in Las Vegas is gaming. That news was a concern,’ Martin-Denning says.”

“A once red-hot concept that had investors salivating about the prospect of owning a piece of the Strip has cooled considerably. The idea behind buying a condo hotel was having a place one could call home, yet having help making their mortgage payments.”

“The problem is the expectations of the buyers of condo hotel units aren’t being met with revenue from the city’s first two projects - the Platinum and Signature, a partnership of MGM Mirage and Turnberry.”

“That led to a lawsuit by more than 40 investors who claim they were defrauded because they were promised profits from rental income and told by sales agents how the value of their units were likely to increase.”

“‘It is not a concept for this time,’ said Paul Murad, a real estate broker and author of ‘Manhattanizing Las Vegas.’ ‘It is a very difficult to finance if you are a developer and much more difficult for end users. In some cases, it is nearly impossible. Lenders are asking people to double their down payments.’”

“Murad said he has talked to investors who are planning to walk away from their deposits on condo hotels because the units have already depreciated and won’t be the investment opportunities once imagined.”

“Murad, who recently hosted a condo hotel symposium in Las Vegas, said a lack of understanding by lenders is contributing to the problems. Unlike a straight condo project, there is the variable of a hotel and that raises questions about how it will be managed.”

“‘Buyers are much more difficult to find,’ Murad said. ‘A lot of people have been burned on other condo hotel projects. The problem is their revenue expectations were unrealistic. They were caught up in the hype.’”

“The concept hasn’t turned into what Phoenix-area resident Adam Goodman envisioned when he bought four units at Platinum. He said he learned it works for someone wanting to own a vacation resort and generate some income whenever they are not there.”

“Barbara Granati-Smedley, a residential real estate broker in Las Vegas, said she bought her condo in Trump for use when her children come visit, but she also views it as an investment. She said she hopes that having her unit in the rental pool will help cover a portion of the mortgage.”

“‘I look at it as a great investment over a period of time,’ Granati-Smedley said. ‘It can’t do anything but appreciate given that it is a quality Trump project. But this is not for someone who is not a risk-taker.’”

“Las Vegas real estate investor Glenn Pantone said he has shied away from the concept, which doesn’t make sense as an investment to him. If someone pays $500,000 for a condo and the owner and hotel split the revenue 50-50, the hotel would need a 85 percent occupancy at $225 a night to break even. That’s counting a 20 percent down interest-only loan, he said.”

“‘If it doesn’t appreciate, there is no way to make money,’ he said.”

The Daily Herald from Utah. “Even though new home construction in northern Utah County has slowed dramatically, it could take longer for Lehi, Saratoga Springs and Eagle Mountain to get rid of their glut of unsold new homes because of a significant slowdown in sales in the first quarter, according to a report by Newreach.”

“The number of unsold new homes and condominiums in Utah County skyrocketed 275 percent to 982 in the first quarter from a year ago, and is down slightly from 987 in the fourth quarter. Lehi led the state for the second consecutive quarter with the greatest number of unsold new homes, accounting for a whopping 263 units, followed closely by Saratoga Springs with 204 units and Eagle Mountain with 157 units.”

“‘Lehi, Saratoga Springs and Eagle Mountain had the lion share of homes under construction. The sheer amount of developable land in northern Utah County meant it has been a haven for builders. But as the market started to slow down, home sales also plunged in those cities,’ said Todd Cook, Newreach’s VP of research.”

“The median asking prices for all existing residential types in March fell 12.7 percent to $289,900, from $331,913 a year ago, according to the Utah County Realtors. New home sellers also recognize that pricing is an issue, and are making adjustments accordingly, Cook said.”

The Deseret News from Utah. “About 6 percent fewer Salt Lake County new homes and condos went unsold in the first quarter compared to the 2007 fourth quarter, but far more new homes are lingering on the market than a year ago.”

“Statistics released by Salt Lake-based Newreach indicated that 977 new homes and condominiums were unsold in the first quarter, down from a record 1,037 in the prior quarter. But the first-quarter total last year was less than half that, at 437.”

“How quickly the inventory is depleted depends on prices, Jason Eldredge, executive VP of sales for Newreach. added. The number of units below $325,000 will likely shrink, because they’re still considered affordable.”

“‘There’s still a fair amount of complete and unoccupied (homes),’ Eldredge said, ‘but we believe that by year-end, people who are looking for deals in this sub-325 bracket might be disappointed.’”

“The combined underconstruction and new-but-unsold figure of 2,088 represents about a nine-month supply of new housing inventory in Salt Lake County, based on 715 new-home closings in the first quarter.”

“‘The worst thing we could have had happen was to have the building sector continue to slap new homes down without any buyers,’ Eldredge said. ‘If you look at data in Nevada and Idaho, Utah looks great. The worst subdivision I’ve seen in Utah has 25 to 30 homes sitting there vacant with ‘for sale’ signs. In Boise, it wasn’t uncommon to see 50-to-100-lot subdivisions, all finished, new, vacant. The same in Vegas. They continue to build. It’s amazing.’”




Bits Bucket And Craigslist Finds For April 22, 2008

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