The Housing Bubble

It’s Friday desk clearing time for this blogger. “Sharon and James Foster have had a home on the market for six months. Located in Sauk City, the Fosters chose to sell the property after deciding being landlords wasn’t for them. ‘The renters have not stayed as long as we had hoped, Sharon Foster said. We want to get secure with our finances, and we just don’t want to have the headaches anymore.

“Sharon said she wasn’t sure why the house wasn’t selling. ‘I don’t know if it’s because we haven’t finished the outside yet,’ she said, referring to the unfinished stoop in front of the house. ‘I really don’t know why it hasn’t sold. There’s a really cute layout.’”

“Diana Lauver tried to sell her Ivor Road house through traditional methods, but when those failed her, she decided to try something different. Lauver’s four-bedroom, 3.5-bath brick house will be given to the winner of an essay contest in July, she says.”

“The contest requires both an entry fee of $200 and an original essay about ‘how winning this house will change my life.’ ‘Since I’m a teacher, I thought, well, they should write an essay,’ Lauver said.”

“The decision to sell the house, which has 2.7 acres, a two-car garage and a pool, came after Hurricane Isabelle’s damage to the property forced Lauver to refinance her house.”

“‘FEMA stopped counting at 150 trees,’ she said. ‘I was left with holes the size of vehicles.’”

“Lauver also hired a contractor from Virginia Beach to fix the pool but claims the contractor took the money and did not complete the work. Lauver had to refinance her house to be able to pay to fix the damage, leaving her with a mortgage of $1,700 a month.”

“‘It’s just been a big struggle for me,’ she said.”

“Because no one’s biting, Rob Stark has added a feature to his listing — a $5,000 bonus for the buyer’s agent. ‘Once it’s there forever, then it’s just like any other house,’ said the homeowner, who owns a mortgage brokerage. ‘If you don’t hit the emotions, you’re not going to sell anything.’”

“But his case is an example of how buyer’s agent bonuses have had mixed success. Stark first offered the cash in mid-April and it expired in mid-May with little action.”

“His agent, Fran Mazer, remembers that the bonus didn’t boost attendance in an agents-only open house because few had clients looking in that price range and locale.”

“‘There was really nobody to talk to - maybe there were two or three people,’ said Mazer, associate broker in Woodbury. ‘They were like . . . ‘If I had a buyer, I’d bring them.’ That’s the problem.’”

“Northern Beaufort County’s once-soaring real estate market has fallen to Earth with a thud. ‘We’ve got some really good, strong listings that people should be calling about, and they’re not,’” said broker Pat Harvey Palmer. ‘They’re just not coming in.’”

“The main reason for the poor sales, Palmer said, is the greed sellers showed during previous years, taking advantage of a booming market and driving up the cost of real estate. ‘Our market has appreciated way too fast,’ she said. ‘We’re in a readjustment period.’”

“Palmer said she used to tell people they could expect 4 percent to 6 percent appreciation on a house during a two-year period. But when the market hit its high point from 2002 to 2005, sellers raised their prices, hoping to turn a quick 12 percent to 20 percent profit.”

“‘Two or three years ago, it was tops — you could buy a piece of property for $100,000 and might mark it up $50,000,’ said broker Bill Anderson. ‘But now, I think we priced ourselves out of the market.’”

“Last month, Doug Hardegree helped the McCalla Raymer LLC legal firm foreclose on 327 properties. Tuesday on the courthouse steps in Lawrenceville, there were only 97, he said.”

“It’s not that the tide of foreclosures has truly ebbed. A legal change forced lenders to file some paperwork differently before foreclosing. The change will push many of the June foreclosures into later months, he said.’

“‘Next month will be horrendous,’ Hardegree said. ‘And the month after that will be worse.’”

“The request from Rhodes Homes for Pravada, a master-planned community of 25,000 homes on 5,000 acres…also calls for a golf course, community and recreation centers, parks and other open space, plus retail development. Rhodes’ officials have previously stated that with approvals, the project could take as much as 30 to 50 years to fully develop.”

“John Gall, representing Rhodes Homes, said the developer has demonstrated to the Arizona Department of Water Resources an adequate water supply and negotiation for the utility approval continues.”

“‘I don’t know why we need this density,’ countered Golden Valley resident Verna Schwab. ‘Don’t you see the number of foreclosures? Don’t you see the number of vacant properties?’”

“Market analysis showed a sizable inventory of housing stock on Hilltop. Much of this is due to foreclosures.”

“Councilmember Lauren Walker said many such properties on Hilltop, which is in her district, have been purchased by investors who are using them as rental properties for the time being to generate revenue. ‘It is pretty disturbing to see that happening, she said.’”

“When potential clients heard that HomeSight, a community development corporation based in Seattle, required financial counseling, income verification or down payments as small as 2 percent, many opted for sub-prime lenders who did not require any of that.”

“‘We mitigate our risk by counseling, and not by pricing,’ said Executive Director Tony To. ‘Literally, overnight, we lost all our clients.’”

“To said a developer building condos cannot afford to sell them for under $250,000. In contrast, single-family homes on Hilltop are going from $130,000 to $200,000.”

“Collapse of the housing market, the state’s budget shortfall and a decline in overall spending are all reasons contributing to a gloomy year for this and many other cities in California.”

“City Manager Jack Lam has always called the city reserves ‘funds for a rainy day.’ Wouldn’t you know it, it’s raining.”

“A few years ago, when multiple bidders would show up at a real estate open house, the truly desperate resorted to writing love letters to the sellers. The letters dripped with compliments for the property and ended with a plea for mercy (and a signed contract).”

“Today’s real estate market, however, calls for a different kind of letter, less a fuzzy valentine and more like a cold splash of water. It’s what you write to accompany a bid that is so far below the listing price that it cries out for explanation.”

“Inspired by the success of a friend who used this tactic, I drafted a sample letter that buyers who fear overpaying might send to homeowners.”

“Dear Seller: I’m writing to let you know that I would like to make a bid on your property. Given that my offer is well below your asking price, I also feel I owe you an explanation.”

“First, consider the big picture. Nationwide, home prices in the first quarter of 2008 fell 14.1 percent compared with the same period a year earlier, according to the Standard & Poor’s/Case-Shiller U.S. National Home Price Index.”

“That’s the biggest decline in the 20-year history of the data. And just in case you’re wondering, during the housing downturn of the early 1990s, the decline was never worse than 2.8 percent.”

“Not only that, earlier this month, the National Association of Realtors pointed to the huge number of existing homes on the market. So buyers have options right now.”

“It will be tempting to view my low bid as an insult. Please don’t make that mistake. Your home is genuinely appealing, and I wouldn’t have written this note unless I was serious about buying it. Getting a firm offer in this market is an accomplishment. So congratulations!”

“Oh, and one more thing. You presumably need someplace to move. My guess is that you’ll find these same points compelling when it’s your turn to buy. You just might succeed in buying for a better price, too.”

“I look forward to hearing from you soon.”

“Yours Truly, The Realist”

The New York Times reports on Florida. “A Florida couple, Scott and Deanne Hopp, bought and sold house after house, and seem to have done well at it for a time. They specialized in buying houses with less than no money down, borrowing more cash than they actually had to pay. One of their homes caused a scandal when it was featured in the local newspaper as being used for sex parties promoted on the Internet.”

“The Hopps protested that was not their fault, that a tenant had organized the parties without their knowledge. Simply renting out the house was a violation of the terms of their mortgage, but the lender, Countrywide Financial, evidently did not notice.”

“A month after the scandal broke, it gave the couple another million-dollar loan to buy a house four miles away. Now both of those loans have gone into foreclosure, and so have three others that were made by other lenders on other homes.”

“The total judgments against the Hopps come to $3.9 million, and that does not include hundreds of thousands of dollars in second mortgages that apparently were not worth trying to collect. The houses are selling - if they are selling at all - for far less than the amounts owed.”

“The house with the sex parties in Holmes Beach, provides an example of the ways the Hopps were able to finance their purchases - and of how far Florida real estate values have fallen.”

“They bought the home in early 2004 for $710,000, borrowing $829,300. After a few new loans and a refinancing, they had a $980,000 first mortgage and a $70,000 second mortgage from Countrywide. The first loan was a negative amortization loan, and by the time the loan went into default they owed $1.04 million. Add in the fees and back interest, and the total came to $1.1 million.”

“The securitization records showed that $1.1 million was just 70 percent of the house’s appraised value, but that appraisal proved to be a little high. Countrywide has been trying to sell it for months, at ever lower prices.”

‘The latest offering price is $729,900, but if no one offers that much the house is to be auctioned next month, with a minimum bid of $369,000.”

“It was Ms. Leder, a former resident of Holmes Beach, who first noticed the home on Countrywide’s Web site and has followed its descending asking price for months.”

“‘It reminds me when I was a cub reporter at The Bradenton Herald in the early ’90s, chasing similar deals,’ she said. ‘The names of the banks were different then and most of them have long since closed down. But the daisy chain of creatively financed sketchy deals remains eerily similar.’”

The Gasparilla Gazette. “In a phone interview, Lee County Property Appraiser Ken Wilkinson said said the year over year drop in values countywide is a rare event. ‘It’s the first time in my history, which is over 28 years,’ he said, adding that he is not sure when the last time was that there was a decline in Lee County. ‘But I would guess that it hasn’t happened since the Depression.’”

“While Lee County was down by 12.36 percent, property values across Cape Coral dropped for the second straight year, falling more than 25 percent in 2007. Cape Coral lost 26.4 percent of its just value, meaning the city saw more than $7.3 billion of its value dissipate.”

“The Cape’s drop was the most severe in the area though Lehigh Acres had a nearly comparable decline, losing about 23 percent of its value. ‘Those were the areas where most of the markets were based upon, in my opinion, greed and speculation,’ Wilkinson said. ‘Those who went up the farthest will come down the farthest.’”

“Property owners should be prepared for a similar decline next year, according to Wilkinson. He pointed to the massive rise in residential short sales that are moving homes off of the market at bargain prices.”

“Unlike foreclosures, short sales are considered arm’s length transactions and would be used in the formula to determine real property values.”

“‘Realtors are going to be happier this year because there are going to be more sales. But the majority of those are going to be short sales,’ Wilkinson said. ‘Once that becomes the market, we use them obviously.’”

From Tampa Bay 10. “Along a seemingly unending line of perfectly manicured lawns in a New Tampa golf course community, the eye stops on a house that is conspicuously out-of-place. In the front yard, a Trojan condom box sits undisturbed in the midst of a mangled mess of weeds. A backyard pool is green with algae and muck, and a rotting wood chair bobs near one end.”

“On the front door of the house, a white piece of paper flails in the breeze. On it, there is a stamp from a Hillsborough County code enforcement board. This house is a foreclosure.”

“Bob Jester has lived next to a foreclosure eyesore in Inverness for the last few years. ‘I’m just disgusted,’ he said. ‘The inside of it’s just been completely destroyed. The toilets are ripped up. [The] electrical is ripped up. There’s [sic] holes all over the wall. Feces, garbage.’”

“When the backyard swimming pool became overgrown with algae and there were no fences to keep neighborhood kids out, Jester took it upon himself to figure out who the owner was. And his suspicions were right. The house had been repossessed by a mortgage company in California.”

“In Hillsborough County, there are about 400 new foreclosure filings each week.”

“Oftentimes, trash, piles of newspapers, overgrown lawns and algae-ridden pools sit untouched for months as a house goes through foreclosure. ‘It’s an attractive nuisance to children. [I] guarantee kids are the first who will know there’s an abandoned house in the neighborhood,’ said Hillsborough County code enforcement manager Jim Blinck.”

The St Petersburg Times. “The housing downturn continues to crush Florida bankers: Overdue loans, mostly real estate related, have nearly quadrupled the past year in the Sunshine State.”

“If that were not enough, the state’s lenders have unusually low cash reserves to protect against mortgage defaults. And 41 percent of Florida-chartered banks were unprofitable the first three months of this year. That’s twice the number of banks that bled red ink last year.”

“It’s not just problem home mortgages, but also developers defaulting on loans used to buy land and finance condominium towers. ‘We’re still on the downside of the curve. We’ve not reached a bottom,’ Miami banking expert Ken Thomas said.”

From WESH.com. “Like so many Central Florida communities, MetroWest has seen its share of foreclosures. But the Hamptons subdivision has taken an unusually hard blow.”

“Residents estimated that there are well over 100 foreclosed homes. The homeowners’ association still keeps things looking nice, but on every street sit empty condominiums and townhomes.”

“Ann Samball, a Realtor who bought a condo in the Hamptons two years ago as an investment, is riding out the tough market by renting it out. She said she believes that so many buyers in the Hamptons are in trouble because they didn’t plan ahead.”

“‘I truly believe that was a really hot property, especially for investors, and people bought into them thinking they were going to flip it and not planning for something to happen such as the market to change as it did,’ said Samball.”

The Daily Business Review. “Investors interested in buying distressed properties are increasingly using a different tactic to purchase desirable assets at a deep discount - buying the defaulted mortgage.”

“Investors are making an end-run around owners, buying mortgages on well-located commercial and residential properties, foreclosing and taking ownership of projects some lenders are increasingly desperate to unload.”

“‘They are going to the mortgage companies and asking to purchase their nonconforming loans for 50 to 60 cents on the dollar. Sometimes even less,’ said David Serle, broker in Boca Raton. ‘They then package these loans and foreclose on the properties. Now they have homes 40 percent to 50 percent below market value. They fix them up, and sell them for a profit.’”

“Ultimately, the size of the buyer’s discount is tied to the seller’s motivation and the desirability of the properties in the debt package, said Ron Kriss, a real estate attorney with Akerman Senterfitt in Miami.”

“‘Everything is supply and demand,’ Kriss said. ‘Some of them are very nice properties and some are garbage.’”

“The best bet for buyers is to target banks with the highest rate of nonperforming loans, burgeoning real estate-owned property portfolios and concerns about liquidity and potential regulatory issues.”

“‘That’s a seller that’s going to be very highly motivated,’ Kriss said.”

“As home foreclosure cases piled up in his court, Miami-Dade Circuit Judge David C. Miller began to notice more affidavits from mortgage lenders stating they couldn’t locate the borrowers.”

“‘The ones that caught my attention very early on were the ones that said they didn’t have driver’s license information or they didn’t have employment information for the borrower,’ the judge said in an interview.”

“‘Did someone just walk in off the street and say, ‘Gimme money?’ the judge asked sarcastically. ‘I don’t think that’s possible.’”

“Increasingly, banks are struggling to locate defendants to serve them with formal notices. Whether the banks are performing their due diligence to find the defendants or whether the defendants are being evasive is anyone’s guess.”

“Attorneys representing Countrywide, a lender with thousands of mortgages in South Florida, cited a blanket corporate policy against commenting on foreclosure matters. Contacted directly, Countrywide officials also declined comment.”

“Officials with Washington Mutual, another big mortgage lender, deferred comment to the company’s Miami-based public relations staff. They deferred comment to the company’s national staff, who responded by e-mail that they had no comment.”

The Seminole Voice. “Is the U.S. in a recession? Not even economist Sean Snaith can answer that question yet. ‘People ask me and I tell them the truth: I don’t know,’ said Snaith, the director of the Institute of Economic Competitiveness for the University of Central Florida.”

“One of the factors ailing the economy is the housing market, which had been described as a bubble that popped. Snaith said he did not think the market was a bubble, and after periods of sleeplessness and watching the Food Network, he came up with a metaphor he was comfortable with: The market is a soufflé.”

“The soufflé recipe called for 77 million baby boomers, historically low mortgage rates, innovations in financial markets, low unemployment rates, strong growth in personal income, and a pinch of speculation, he said.”

“These ingredients came together to make the perfect soufflé, rising high in the ‘preheated’ economy until some ingredients started to fall out.”

“‘We had this incredible convergence of real events - all the ingredients were there and they came together in just the right way, in a way we’ll never see again in our lifetime, quite frankly,’ he said.”

The Star Banner. “The economy might or might not be in a recession, but it’s not likely to get much better for the next 12 to 18 months, a leading economist said Wednesday.”

“‘We don’t anticipate getting back [to stronger growth] until 2010,’ Snaith said. ‘The housing bust has been compounded by the credit crunch. It takes time to get that confidence back.’”

“The year started on a ‘dismal, sour’ note, he said. ‘There was no silver lining in any of those clouds.’”

“‘We’ve got a tough situation ahead,’ Snaith said. He later added that home prices nationwide won’t return to the prices seen in the 2004-2006 boom. ‘We’ll never see the levels that we saw during the housing boom,’ he said.”

“He described home prices as a ’souffle,’ not a bursting bubble. ‘There’s no happy ending for a bubble,’ Snaith said. ‘A souffle, if all the ingredients are in place, does not have to go flat.’”

The Naples News. “Realtors, property owners and independent property appraisers might be turning blue over recent news that Collier County’s property base has decreased by an average of 4 percent.”

“But they’re not upset for the same reasons they’ve expressed in the past: reports that the Naples market was one of the most overpriced in the nation.”

‘Now, they’re screaming that the 4 percent decrease in value doesn’t come close to representing the fast and vast decline in property value.”

“‘How can this be? Down only 4 percent?’ asked local property appraiser and property tax agent Donald J. Ward, who said he’s been involved in the Naples-area real estate market for 14 years. ‘The Dec. 27, 2007, issue of the Wall Street Journal reports a study showing Naples … as the fifth-worst declining market in the country.’”

“‘And these guys show only 4 percent? That’s only a little shy of a perfectly stable (market). In some areas of our county, values are down 50 percent or more, and I have the qualifications and documentation to prove my numbers,’ he said.”

“Ward contends that his own home has decreased in value by 50 percent, and his appraisal business has decreased by 70 percent due to the horribly ailing real estate market.”

“‘They are saying that our values went up 7 percent in 2006 and only down 4 percent in 2007. That would be a stable market, meanwhile, there have been over 2,000 foreclosure filings so far in 2008,’ Ward said. ‘Myself and everyone I know - having anything to do with real estate - just can’t hang in there anymore.’”

“‘If you own property in Naples Park, Golden Gate, Golden Gate Estates, Marco Island, and many other areas of Collier County, values are down 40 to 60 percent, not 4 percent,’ Ward said.”

“‘The property owners of Collier County are getting robbed, and many of us can’t even pay our bills to begin with, due to the crumbled real estate and construction market,’ Ward said.”

“He is so incensed that he started a new local organization called Coalition Against Properties Unjust Taxation.”

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

OK, folks, I really need your help. I am going on the road from tomorrow until next Tuesday. So I am going to be using a lot of your topic suggestions. Please give me your best effort!

Also, I have gotten some questions about the meet-ups in California. One thing to note; I doubt I will be dining at these events but the first two are located at establishments with kitchens. By all means, come when you can and leave when you want. I’m sure the owners would appreciate any business you choose to give them.