The Housing Bubble

The Ventura County Star reports from California. “Dark days haunted Mike and Kristin Bertrand after they learned they were losing their Newbury Park home. Mike Bertrand was skeptical of solicitations from real estate agents, brokers and scam artists. ‘It’s not like somebody gives you a handbook and says, Here’s how to go through foreclosure,’ said Bertrand.”

“Frustrated by the lack of support, the Bertrands decided to start Moving Forward, a nonprofit, peer-based group that meets every other Friday at St. Matthew’s United Methodist Church in Newbury Park.”

“The purpose of Moving Forward is to share ideas, and not to place blame on how it happened, said Kristin Bertrand. The stigma surrounding foreclosure can be overwhelming for homeowners. They often get criticized for making bad decisions and buying rashly. Many people facing what seems like financial ruin are afraid to come forward, not wanting to hear ‘I told you so’ by others who might have warned them about the market crashing.”

“Even though red flags in the market began surfacing in late 2005, some people probably felt pressured to buy after seeing home values surge in double-digit percentages from year to year. There also was a projection that the median sales price for a Ventura County home would exceed $1 million by 2010.”

“Kristin and Mike Bertrand say they were not casualties of the mortgage crisis, but of a faltering economy. When the couple purchased a home in 2001, their combined income was more than $140,000. They determined their mortgage, then around $360,000, was affordable.”

“But they refinanced a few times, taking out equity to pay for bills. It compensated for a reduction in income, tens of thousands of dollars in loan fees and for upgrades.”

“Mike Bertrand has had job changes and had been out of work since February. He started a new job in mid-April with an annual salary of $62,500 — not nearly enough to afford the $4,200 monthly payment on a new mortgage.”

“He admitted that if they hadn’t refinanced, there is a chance the family could have stayed in the house. The Bertrands went into default last June. Three months later, the property went into foreclosure. The Bertrands are in the process of moving to another home they leased last week.”

“At one point, Mike remembers Kristin telling him, ‘We can’t be the only ones feeling this.’ They’re not. In Ventura County, there were 791 foreclosure filings in March according to RealtyTrac. And there were 2,415 filings in the first quarter, up from 1,514 a year ago.”

The Monterey County Herald. “As the national tide of foreclosures sweeps Salinas, hundreds of homeowners are reaching panic levels, many fearing they are becoming targets for scams. They are inundating the phones of local home-retention counselors, often burdening them with personal problems that come with financial woes.”

“Given the demographics of Salinas, most of those affected are low-income Latino families.”

“‘They’re undereducated, underpaid field workers,’ said Socorro Bernal, lead housing counselor for the Monterey County Housing Alliance. ‘They were given loans with negative amortization instead of being given a realistic number. A person who makes $25,000 a year should have never qualified for a $700,000 loan. It’s outrageous. It was designed for failure.’”

“Blanca Arias bought a three-bedroom, two-bathroom home in East Salinas for $595,000 two years ago. The cabbage harvester and her husband were struggling to pay $4,300 a month, but when she received a notice the payments would climb to almost $5,000, she decided to phone her bank.”

“‘I was calling and calling, they told me to wait, and finally they told me they couldn’t help me because they were helping those who were not making their payments,’ Arias said in Spanish.”

“With an estimated 822 bank-owned homes, 250 on auction or being sold by secondary lenders, and nearly 2,000 homes on the brink of foreclosure, according to the State and Consumer Services Agency, the market is saturated. Homes that two years ago sold for $600,000 are now barely fetching $400,000.”

“Congress is working on a rescue package that would allow thousands of homeowners to salvage their homes, but such aid is not likely to take effect for months.”

“‘We’ve heard people say we’re going to crawl out of this in five years,’ Bernal said. ‘Those loans, those funds politicians are (looking for), those should have been here yesterday. Tomorrow is too late, we need them now.’”

The Recordnet. “A national homebuilder is hoping for a sales boost for its 1,412-home Manteca development by heavily promoting an expansive clubhouse and recreation area with radio and newspaper ads and mailers.”

“‘We’ve slowed down,’ said Kayo Hagelin, VP of marketing in the Ripon office of Pulte Homes, Del Webb’s parent company. ‘The big challenge isn’t that they don’t want to live here. It’s selling their house so they can move here.’”

“Gregory Group president Greg Paquin said Del Webb’s ‘active adult’ community does give the developer a sales advantage by being able to tap into a built-in market of people who as potential home buyers ‘may be less influenced by some economic conditions.’”

“Del Webb is selling slightly better than the average project because of that built-in market, he said. ‘The caveat, though, is that a fair amount of folks, if not most of them, do have to sell an existing home first,’ he said.”

“Paul and Lana Duenweg are two of the approximately 500 residents of the Manteca community dubbed Woodbridge. After six years of looking, they decided to buy one of the first homes in the Woodbridge development.”

“Since they bought their 2,000-square-foot home for $425,000, Del Webb cut the price on that model to about $375,000, he said, but he and his wife don’t mind. The valuation on the Concord house they sold in order to buy in Manteca has dropped about $100,000, he figures.”

“‘You can’t time everything in life perfect,’ Duenweg said.”

The Daily Bulletin. “The 140 townhomes being built by J.H. Snyder near Holt Boulevard and Euclid Avenue are nearly complete and are expected to go on the market in June. The 160 so-called affordable apartments in the Ontario Town Square project will be close behind.”

“But the anticipated reinvigoration of the city’s downtown may take much longer.”

“‘As you know, the credit market has tightened up. So that’s making it more difficult for them,’ said Brent Schultz, Ontario’s housing manager.”

“Mark Smiley, executive director of the Chamber of Commerce, said he is thrilled with the work under way to liven up an area that in recent years has failed to draw many visitors. ‘The attention being put toward it is obviously a recognition that it needed a face-lift,’ he said. ‘I think it’s going to attract a different clientele.’”

“‘It will have a couple of restaurants, a coffee shop and a juice shop, and those types of businesses will attract people to come in and sit out on the patios,’ he said.”

“Today, however, several buildings are empty along the east side of Euclid, where Yangtze Restaurant and a few other tenants hang on next to bare lots slated for retail and construction at Holt.”

“Dave Puscizna, owner of Euclid Loan and Jewelry, said the city bought his property two years ago, and he’s waiting to move across the street. He says business at his pawn shop has actually improved with the downturn in the economy, but he thinks the activity in downtown won’t take off for a considerable amount of time.”

“‘Are people in California going to rush to get into places over storefronts? I don’t think we’re there yet,’ Puscizna said. ‘This could be a five- or 10-year deal.’”

“‘I guess in the long run the changes could be positive, but now it feels like everything is in limbo,’ said Sharon Baca, a 15-year employee of Gemmel’s Pharmacy on the west side of Euclid.”

The Union Tribune. “As the U.S. economy struggles to recover from the ongoing housing slump, the appraisal industry is undergoing changes designed to improve professional standards and reduce the temptation for appraisers to overvalue homes.”

“Freddie Mac and Fannie Mae, the largest mortgage purchasers in the U.S., have agreed to shield appraisers from outside pressure in an arrangement with New York Attorney General Andrew Cuomo and the Office of Federal Housing Enterprise Oversight.”

“In part, Freddie Mac and Fannie Mae have agreed to stop purchasing loans from lenders who use in-house appraisers.”

“Ted Faravelli Jr., executive director of the California Association of Real Estate Appraisers, said it’s unfair to blame appraisers alone for the decline of home prices. Pressure to inflate values came from all quarters, he said. Everyone from buyers and sellers to mortgage brokers and real estate agents had a stake in seeing home loans approved as prices soared between 2000 and 2005, he said.”

“‘I think there is enough culpability to go around,’ Faravelli said. ‘All of the participants should shoulder some of the blame. Many people were complicit. Everybody had some chips in the pot.’”

“Longtime San Diego appraiser Rick Foos served on an Appraisal Institute committee charged with reviewing the Cuomo agreement and an accompanying code of conduct.”

“‘You can have two competent appraisers who appraise the same property and have different opinions. Is it reasonable for what someone is willing to pay? If not, that’s the time you have to raise your hand and say ‘Something is wrong here,’ Foos said.”

“Appraisers who do so often find themselves under fire from clients, he added. When you tell someone a home isn’t worth an agreed-upon sales price ‘you are affecting the commission to a loan agent, you are affecting the commission to a real estate agent.’”

“‘The source of the problems is the highly incentivized nature of the mortgage business,’ said Sara Schwarzentraub, a La Mesa-based appraiser. ‘What will happen is a lender will call and say, ‘Gee, I see your range of value is from $550,000 to $575,000, couldn’t it be $580,000?’ she said. ‘Or they will call up and say, ‘Gee, do you have to make this comment about the condition of the roof?’ Over the time it becomes a big deal.’”

I suggested a topic on the moving target that is a lowball offer. “Conventional wisdom claims that lowball offers don’t work. Homebuyers are warned not to ‘insult’ sellers, who are counseled not to counter offers from ‘disrespectful’ buyers. But conventional wisdom doesn’t always hold true. With a severe slowdown in sales, some experts now offer new advice. What is a lowball offer?”

“Karen Monsour, a Realtor in Coral Springs, Fla., says any offer that’s 25 percent less than the asking price falls into the lowball category. Others say the term ‘lowball’ is more subjective. Miriam Bernstein, an associate broker in Scarsdale, N.Y., suggests that just about any offer could be labeled as ‘lowball’ if it provokes the seller to outrage or anger.”

“‘The best definition I’ve ever heard is that ‘lowball’ is an offer that’s so low the sellers can’t contain themselves. They get angry,’ she says.”

One replied, “I get angry and outraged when I see a ‘highball’ sales price, especially when the property sits on Craigslist or MLS for more than 6 months without any play. Disrespected and insulted??? It’s not a sellers market anymore so who cares what they think. That ship has sailed.”

Another, “I would qualify a lowball as anything 25% or more below the intrinsic value of the house, not the wishing price. By that I mean 25% below 120 times rent, or some equivalent investment value metric. IMO, it is those who are ready and willing to buy a house who should be insulted by the wishing prices being asked by ’sellers’ in the current market environment.”

One notes, “We keep seeing stories about sellers who wished they HAD taken that ‘lowball’ offer they got 10 months or so ago. As Forrest Gump said, ‘Stupid is as stupid does.’”

One points to foreclosures, “A house here where I live listed at 179,900 for 2 years, is now REO, listed at 124,900 and still sitting. Obviously for that one, 30% below original listing price still won’t fetch a seller.”

One on upside down sellers, “What if you’re upside down? You can’t afford to sell for the ‘market’ price (whatever that is), much less the lowball.”

One with caution, “The only disadvantage I can see to serial lowballing is that eventually you’re bound to encounter a seller who’s desperate enough to accept, and then BANG!, you’re the new greatest fool!”

One on the process, “Lowball offers are below market value — lower than what a buyer thinks s/he will have to pay and at a level realtors and sellers fear to contemplate. That’s why realtors try to shame buyers into avoiding low offers.”

“Without lowball offers, the RE market would have come to even more of a standstill by now.”

“From property tax records in my area, I can tell you it’s REALTORS who have been making lowball offers to get property off the MLS.”

The Bradenton Herald from Florida. “After complimentary coffee and introductions Saturday morning, the area’s first official ‘foreclosure tour’ headed on its way. Roughly 25 people - the bulk of them investors - attended the tour on a small chartered bus that made stops in east Manatee County.”

“The first of eight houses visited during the tour was a three-bedroom, two-bath home in University Park being offered by the bank for $249,000. The home sold for exactly $100,000 more two years ago, according to Manatee County property records.”

“Another 2,749-square-foot home on a freshwater canal in the Inlets at Riverdale, the most expensive on the tour, was selling for $439,900 - $265,000 down from what it sold for just two years ago.”

“Dan Delzer of Lakewood Ranch took the roughly four-hour tour Saturday in order to work on what he calls his ‘10-year-plan.’ That plan involves becoming wealthy through investing in real estate.”

“‘I have a goal of 10 years, being financially free, and it doesn’t come from bringing home a paycheck,’ Delzer said. ‘I think anyone in Sarasota or Bradenton, you have to get in right now. I don’t think we’re going to see prices this low again. Anybody that’s waiting, I don’t know what they’re waiting on.’”

“Denny Floden of Horizon Realty in Bradenton was looking for investment properties as well as homes for some of his clients.”

“‘There’s some good values - not necessarily what they’re asking, but what you could buy them for,’ Floden said. ‘If you were buying something to live in for a long time, you’d really make out. But if it was going to be a rental, you’d have to be much sharper on your pennies. It doesn’t take much to screw up your numbers if you’re buying as an investor.’”

The Tribune from California. “Kathy Hilstein watched the housing market carefully last year, waiting for prices to fall. In November, she decided to buy an investment property— a foreclosed condominium in Santa Maria. In March, she closed escrow on a second foreclosed property, a two-story home on an acre off Los Berros Road in Arroyo Grande. Hilstein, the owner of a cleaning service, liked it so much that it’s now her permanent residence.”

“‘I kind of knew the market would slow down,’ said Hilstein, who found the properties during four foreclosure home tours. ‘I wasn’t necessarily looking at foreclosures. I was just looking for an investment property with a good price for the location and a good rental return.’”

“‘For me, it’s a no-brainer,’ said Hilstein, who has six rental properties in the county and Santa Maria, (and) bought her Arroyo Grande home for about $80,000 under current market value. ‘I would kick myself if I didn’t buy property right now. The market will go back up. I can’t imagine it not going back up.’”

“There were 635 homes sold in the county from Jan. 1 through April 30 compared to 877 during the same period the previous year, according to the Central Coast Regional MLS. But the median price of a home in San Luis Obispo County during that period stood at $480,000, down from $545,000 the previous year.”

“‘If people are sitting on the fence waiting, there’s not going to be a bell that rings that says ‘OK, it’s over,’ said Jim Liptak, president-elect of the California Association of Realtors. ‘Sellers that want to have a sold sign planted in their front yard have to be. If they aren’t, then they’re kidding themselves. The prices you could get two years ago and the price today are a totally different thing.’”

“In the first quarter of this year, foreclosure filings in San Luis Obispo County jumped 97 percent from the same quarter last year, according to RealtyTrac. There were 432 filings in the first quarter, compared to 219 in the first quarter of 2007.”

“Linda Midkiff, a Realtor in Paso Robles, said some properties—bank-owned and non-bank-owned—are being sold at competitive prices. A 3,000-square-foot house in Paso Robles recently sold for $509,900 one day after being on the market, she said. In another instance, Midkiff said a bank-owned home was on the market for $341,000. Her clients made an offer at $355,000, but she was told that they were not among the top three bids.”

“‘If a house is priced well it will sell at its current price, close to it or above it,’ Midkiff said. ‘Last year, the phone didn’t ring. This year, the buyers are out there. They want the best deal they possibly can, but they’re willing to put in the offers to see if they can get something.’”

What do you see in your housing market this weekend? Accidental landlords? “Susannah Moss’s trendy one-bedroom Adams Morgan condo, in a converted warehouse, has become a potential money drain. Moss contracted to buy the unit in early 2005. She is trying to sell the condo but has been hampered by the housing slump. Three months after putting it on the market, she has yet to receive an offer. Now Moss, 33, wants to find a tenant for her condo while she waits out the economy.”

“But the condominium association allows only 20 percent of the units to be leased at once, so Moss is on a waiting list. If she tries to rent the unit without permission, she could face a $500-a-month fine.”

“Moss is not the only owner in her building who wants to become a landlord, and the issue has created tension. The debate ‘has created division within the community, and tempers and feelings are running very high,’ said Moss, who also is a real estate agent.”

Lower prices? “The once-invincible condominium market in downtown Boston is weakening Sales of condos in the 12 core markets of Boston, from the North End to the Back Bay, the South End to South Boston, plunged 22.3 percent in the first quarter of this year. Prices slid nearly 33 percent on Beacon Hill and 21 percent in the North End.”

“‘It’s a huge decline’ in sales, said Debra Taylor Blair, president of Listing Information Network. ‘Downtown is slowing down. People aren’t as liquid. They’re not as easily able to move or refinance.’”

Builder troubles? “A depression in the home-building market has claimed a Fishers builder and continues to hammer locally based Davis Homes LLC—a powerhouse for years that now is facing foreclosure on about 80 home sites.”

“Central Indiana is faring better than many of the nation’s housing markets, but better does not mean well. Sales figures don’t offer much optimism, either.”

“‘It was quite a shock to me, as it was to our employees,’ said Peter Ruffing, Day-Marc’s former president. ‘It was not a message or a decision I was prepared for.’”

“‘For one weekend only,’ the radio advertisement says, ‘We are offering massive discounts on all of our models.’”

“Robert Millay, owner of Fox Valley Homes, and his wife came up with the innovative but risky approach as a way to launch the company’s 161-lot housing development…on Neenah’s south side. ‘The market was so bad the last couple of years that we thought we would attempt something that no one has ever attempted before,’ Millay said Friday. ‘It will make or break us. There is no in-between.’”

Market fallout? “Caroline Rohrer wants to sell her southeast Las Vegas florist business, but she’s noticed a big problem with local buyers. ‘There aren’t any,’ she said.”

“Local businesses listed in the first quarter posted median revenue of $385,000, compared with $509,500 a year earlier. Annual cash flow was $100,000, down from $135,606 in the first three months of 2007.”

“Business consultants cited several reasons for the decline in sale prices. Some factors relate to population trends. Others, like much of today’s economic news, hark back to the faltering housing market.”

“For many business buyers, home equity traditionally composed a big portion of the cash they used to close a deal, said John Paglia, a finance professor at Pepperdine University in Malibu, Calif.. Since the real estate market peaked in 2005, though, local homeowners have lost tens of thousands of dollars in equity on average.”

“The median local home price was $243,169 in March, down 20.3 percent from the same month a year ago, said the Greater Las Vegas Association of Realtors. Also, banks, bearing the fallout from exotic loans they made to homeowners, feel a little less charitable today. So it’s tougher to borrow now for virtually any purpose.”

“‘Banks are like turtles, and you know what happens when you scare turtles,’ said Roger Dunivan, a counselor with the Service Corps of Retired Executives.”

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