The Housing Bubble

The Press Democrat reports from California. “After selling just 16 homes in an entire year, Standard Pacific Homes is tired of waiting for a housing turnaround and aims to auction off the rest of its Santa Rosa subdivision in a single day. Today’s auction of 17 homes at Avondale is different in one respect: This is the first bulk sale of newly built houses in Sonoma County. Standard Pacific is resorting to an auction, in part because it must meet sales goals for shareholders ‘They have to make quarterly numbers and that’s obviously a driving factor. This is a strategy to move inventory,’ said Ken Stevens, CEO for the Danville auctioneer conducting the sale.”

“To deal with diminished demand, builders have cut prices as much as 25 percent to sell homes that have already been built. Builders now sell two to three homes a month, enough to possibly put a floor under price cutting.”

“‘The second half of 2007 was very dismal. But we’ve done what we needed to do to get houses selling again,’ said Rick Rosenbaum, VP of sales for Delco Builders, a Pleasant Hill builder with projects in Sonoma County.”

“By clearing its properties off its books, the builder stops the bleeding from mounting debt on loans to purchase land, develop sites and build homes, and other holding costs. ‘They couldn’t wait it out,’ Stevens said. ‘There’s six months worth of inventory sitting there and we can cut it off in a day.’”

“Standard Pacific would be pleased to get 70 percent to 80 percent of previous sales prices for its three-bedroom homes, which range in size from 1,284 square feet to 1,382 square feet, Stevens said. Homes are sold to the highest bidders once a minimum bid is reached. The minimums range from $195,000 to $215,000 for homes once priced at between $424,900 and $479,900.”

The Modesto Bee. “Modesto home builder Harinder Singh Toor hadn’t planned on being a landlord, but he’s become one because he hasn’t been able to sell what he’s built. Now he rents out eight custom homes, some as large as 5,400 square feet.”

“‘I built this house to sell, but I haven’t gotten a single bite on it in a year,’ Toor said about the empty five-bedroom, four-bath house on North Canyon Drive.”

“He had hoped to sell it for $1.2 million, but he’ll settle for $3,000 a month in rent, even though that will cover only about half of his carrying costs. Toor plans to rent out his properties until the housing market recovers enough to sell them. He’s not the only one.”

“There’s a flood of rental homes in need of tenants in the Northern San Joaquin Valley. One day last week, The Bee listed about 50 Modesto houses for rent, with rates ranging from $600 to $3,000 per month. ‘There certainly are a lot of good deals out there to rent a house,’ said Ben Sweet, who manages about 300 Modesto rental properties. He said many homeowners have started renting out property because they can’t sell. ‘We call them landlords by accident.’”

“Barbara Billington wishes more landlords were responsible. She owns 14 rental homes, and manages them herself. Her properties suffer when nearby rental homes are not managed properly.”

“‘I see Bay Area people who own property (in Modesto), and all they want is to put someone in the home,’ Billington said. Too often, she said, bad tenants aren’t screened out, which causes problems throughout the neighborhood.”

The Merced Sun Star. “A deep, dark, dirty swimming pool was abandoned in the backyard of a home in Merced. Pieces of cardboard and a decrepit soccer ball floated in its putrid water. But the worst sight was the carpet of tiny black creatures wiggling within it.”

“Pools have become a huge problem, especially this year. The rise in foreclosed homes, combined with people letting their own swimming pools fall into disrepair, has brought a large number of urban mosquitoes into Merced County, said Allan Inman, manager and entomologist for the Merced County Mosquito Abatement District.”

“The ongoing dilemma cities face is getting people to take responsibility for pools before they become stagnant. If someone still lives where a swimming pool has become a mosquito haven, the city or abatement district can contact the resident and tell them to fix the problem. But if a green pool is at a foreclosed home that has been empty for months — things get more complicated.”

City spokesman Mike Conway agreed that keeping the pools clean is the bank’s responsibility. But lenders aren’t often in the neighborhood to spot a potential problem. And banks can’t work with homes that have fallen into disrepair until they have legal possession of the property, said Andy Krotik, an agent for Gonella Realty in Merced and Atwater.”

“‘I get complaints on a fairly regular basis,’ he said. ‘By the time I show up, the house has already been foreclosed on and the pool’s already green.’”

“He submits a bid to the bank to get the pool clean, an approval process that can take weeks. ‘We are usually dealing with someone out of state with several thousand pools to clean up,’ Krotik said, adding that stopping the problem before it starts does not appear to be a possibility. ‘If someone’s losing their home, they are probably not going to take care of their pool.’”

The Bakersfield Califronian. “These days, areas of southwest Bakersfield subdivisions are works in progress. There are streets that look like construction zones; others, ghost towns. But as these snapshots reveal, go inside the block walls and there are people who don’t mind living a somewhat isolated existence.”

“Some residents who call these communities home like the elbow room. Carpenter Carlos Ortiz Castillo and his relatives moved to a home on a quarter-acre lot off McKee Road. He likes the quiet and, when he threw a big barbecue, nobody complained.”

“‘Where we lived before, the kids would play inside. They didn’t want to go outside hardly,’ Castillo said. ‘I think they feel more free.’”

“Life in nearby Windwood is ‘like living in the country and being in the city,’ said accountant Marianne Diaz, who was walking pups with her daughter across an empty field near Panama Lane and Buena Vista Road. When Diaz moved in around Labor Day last year, there weren’t many homes on her street for six or seven months. But she felt reassured because a security guard worked overnight, and that person was diligent about ensuring people in the neighborhood had a reason to be there.”

“There are likely residents living in newer areas with larger concerns than blowing dust. ‘I kind of view it as they may just be disappointed,’ Jim Eggert of the city’s planning department said. The housing market took major hits, and ‘the neighborhood they thought they were moving into just didn’t happen as quickly as they’d like. Obviously everybody wants to see the subdivisions built and people living in them.’”

The Daily Bulletin. “Nationwide foreclosure rates hit a record high the first quarter of this year - according to a Mortgage Bankers Association report released Thursday - and residents in San Bernardino and Riverside counties are living right in the middle of this phenomenon.”

“The news is good for some home buyers looking to scoop up deals, but others are feeling the harsh brunt of this troubled housing slump. Take Vicki Carpenter, for instance, a 17-year real-estate agent. ‘I’ve worked harder now than I ever have in 17 years,’ said the former president of the Riverside-based Inland Valley Association of Realtors. ”About 80 percent of my business is REO.’”

“REO is code for bank-owned, which happens after homeowners go belly up on their mortgages. Some experts say there’s another tidal wave of foreclosures will hit the market later this year, assuming it hasn’t already. It’s likely to push prices even lower, extending a vicious cycle.”

“Slumping home values are being blamed in large part for the rising tide of foreclosures. Troubled borrowers are left owing more to the bank than their homes are worth. They can’t sell without taking a huge financial hit, so they just walk away.”

The San Francisco Chronicle. “A cavalcade of the rich and famous is joining the Joe Six-Packs threatened with bank repossessions of their homes. Cheery TV sidekick Ed McMahon and former heavyweight champion Evander Holyfield this week became the latest celebrities ensnared in the worldwide credit crisis.”

“McMahon and wife Pamela ‘understand that they are in the same situation as hundreds of thousands of other hardworking Americans, and their hearts go out to them,’ a spokesman said.”

“From King of Pop Michael Jackson to Queen of Soul Aretha Franklin, plenty of superstars recently racked up real estate debts. Some played ‘make a deal” and got reinstated; some got kicked out; some chose to walk away.”

“She may not be a household name, but the California congresswoman represents the Golden State in more ways than one. Just like many constituents, she evidently bet big on the real estate boom - and lost. She’s had three houses in foreclosure proceedings in recent months. Her Sacramento home was sold at a foreclosure auction in March, while her properties in Long Beach and San Pedro went into default, according to press reports.”

“She caught up on payments for the Long Beach house and qualified for a loan modification on the San Pedro property. Richardson blamed the foreclosure on her lender’s ‘miscommunication’ and said she would pay almost $9,000 in back property taxes she owes.”

“Getting behind on his mortgage may be the most normal thing Jackson has done in years. His sprawling Neverland Ranch in Santa Barbara County, complete with train, merry-go-round and Ferris wheel, was due to hit the auction block this spring. In a last-minute reprieve, a private investment company swooped in and bought the loan. Press reports said the company wants Jacko to pay it back by staging an Elvis-style comeback in Las Vegas.”

“A couple of ugly divorces cost the former American League MVP some of the millions he racked up during his baseball career. Canseco could be a pitchman for walk-away homeowners. ‘It didn’t make financial sense for me to keep paying a mortgage on a home that was basically owned by someone else,’ he said about his $2.5 million Encino home. ‘I decided to just let it go.’”

The Daily Breeze. “The foreclosure epidemic sweeping the United States has a silver lining - home prices have been pushed so low that charitable housing groups have been snapping up properties. Throughout Los Angeles, the Christian-based Habitat for Humanity, one of the best-known affordable housing nonprofits, has capitalized on homes that have hit their lowest prices in three decades.”

“‘We’re seeing opportunities to buy homes at less than what it would cost to build a home,’ said Erin Rank, CEO for the Greater Los Angeles chapter of Habitat for Humanity. ‘For the first time in five years, we’re seeing single-family homes listed for under $200,000.’”

“The local chapter of the ecumenical nonprofit, which finished building 16 homes in San Pedro in late 2007, purchased two existing homes in Lynwood. The organization is eyeing more than 50 other homes throughout the region, many of them bank-owned foreclosures, officials said.”

“Depending on the property and scope of the work, the organization will use volunteers to either refurbish the homes or tear them down and build new ones. ‘Some of these homes have sat on the market for well over 60 days,’ Rank said.”

“Home prices have plummeted about 21 percent in the Los Angeles region since March 2007, according to a report last month from the S&P/Case Shiller home price index. In some areas, prices have fallen as much as $100,000 over the past 12 months.”

“The San Fernando Valley Chapter of Habitat for Humanity is also closing in on a sizable piece of property in Pacoima, officials said. The low price stems from a developer selling off portions of the land at a reduced price because of the foreclosure crisis, said Donna Deutschman, executive director.”

“‘We probably would have never gotten this opportunity otherwise,’ she said, adding that the organization is watching the market for other deals.”

Readers suggested a topic on desirable places to live. “When all this settles out, taking energy costs, global warming, quality of life (crime, schools, health care, culture, etc), availability of jobs, costs (purchase, insurance, taxes etc) into account, where will the best places in the US be to buy a home in the coming 3-5 years?”

A reply, “Economcially viable, transit-oriented urban areas with large and diverse job markets, reasonably funded public employee pension plans and uncorrupt state and local governments. New York fails on the last two counts.”

One responded, “I think you just excluded the entire USA!”

Another added, “What other cities have transit plans? Chicago? The pension plan is a total disaster? SF? One-fourth the size of Chicago, and the same budget size? Can we say “corrupt”? LA? No public transportation. Boston? No jobs. One-fifth of the population is now students. What’s left?”

One from out west, “Los Angeles does have mass transit. It doesn’t serve every part of the megalopolis, but for those homes lucky enough to be along the subway, light rail, and major bus lines, it’s provided a drastic relative increase in real estate values.”

“Given that energy costs will likely remain high, housing in mild coastal climates will, after adjustment, be in high demand. Otherwise, I’m afraid the template is Meerkat Manor…”

And another, “You wouldn’t know that LA has a subway system unless you lived near one of the few stops. I have only ever seen one of them, and only then because I happened to go to the building in Hollywood where it is located. LA’s subways don’t go much of anywhere useful - for example, one of the above-ground sections runs almost to the airport but stops a few miles short.”

“LA does have a ton of buses, but they suffer from the same problems that cars do - the ludicrous traffic. So while LA can claim to have mass transit, it’s not of much use to most people who live here.”

To which was posted, “That seems to confirm what the opponents of rail were saying - that the place was just too spread out for it to be practical. That’s why I was so surprised to see it making inroads. London is spread out too but they have trains in every direction.”

From the SF Bay Area. “When I lived in LA I took the train for a year from Newhall to Pasadena. A 45 minute trip took 2 hours ONE way! I saved money, but it took forever!! I had to take 2 trains to get there and go through downtown to get to Pasadena. VERY Ridiculous! I now ride BART straight to work from Walnut Creek. It takes me 45 minutes to get to work on only ONE train!! MUCH, MUCH better!! I love San Francisco! You can have LA with their horrible traffic and metro system. It’s AWFUL!! I really hate LA! Would NEVER go back!”

One exchange, “What do you imagine a 8.0 shocker would do to the city of angles underground? That’s one of the reasons that the LA Metro is one of the most expensive underground rail systems in the world - IIRC it costs several million per yard for the seismic safeguards, on top of construction costs.”

“Another reason the LA Metro system sucks - two really - is NIMBYism and special interests.”

“There’s no link to the Westside (wha?) because lots of people in places like Beverly Hills don’t want a station in their ‘hood.’ Too many people from East L.A and other ‘undesirable’ places, not to mention the homeless might, just might, decide to alight in BH, thereby lowering the tone of the place.
Plus, all that filled ditch construction would make the place look messy…”

“Word is, plans are afoot to finally extend it to places west - where people would actually use it, but its a long battle to get permission from some of the cities on the way. Also - talk about shooting yourself in the foot - one of the lines goes from Downtown to Long Beach, and conveniently misses LAX.”

“Why? Because, when they were planning the line - and the obvious link to the airport (for all those people who weren’t planning to drive to there) the Taxi drivers lobbied long and hard to stop it. They were worried about loss of income, because if people could actually get to LAX without using a taxi, then their business would go down.”

“Which is probably true to some extent - but the needs of the few overcame the needs of the many in this case. So - you get the ba$tard child of compromise - the line takes you to a bus station, where you have to disembark, wait for a shuttle, re-embark, which then takes you into LAX. Which, obviously, puts a lot of people off trying to do it. Almost every other major city in the world has mass transit to the airport, except for L.A”

“Unfortunately, special interests have hamstrung what could have been a halfway decent system, into something that almost no one uses, because the trains don’t go to where people need them to.”

One with an alternative, “L.A. is good if you live close enough to your work to bike it. The terrain is flat and weather is usually good. The traffic for cars suck, but bike riders are immune to traffic jams.”

One looks ahead, “I’m curious what will happen to the US urban landscape over the next two decades. Will our cities devolve back into ’70s-style chaos, replete with diminished services, higher crime and decaying infrastructure? Will the escalating price of oil put a damper on flight away from urban cores, as the population readjusts to higher density living with less reliance on the automobile?”

“Could we actually see a resurgence of rural and (non-factory) farm life? Will rising commodity prices finally force us back into regional food consumption, instead of moving products willy-nilly all over the country?”

One added, “I think you need to add ‘consistent future water supply’ to the mix.”

A post on North Carolina, “Eastern NC within Cape Carteret County might be good
lots of 50’s yankees w no kids to go to school.”

One looks to the heartland, “Great Lakes states will be the best bets (leaving out Chicago, whose river already flows the wrong way). How come?”

“Low costs of housing now. Fresh water. Unlike the south, the southwest, California, the Great Plains, the Rocky Mountains. Crops. Crops grow from rain water, not from the aquifer or huge subsidized public works projects, such as Florida or California. Crops not dependent upon irrigation such as the Great Plains. (See water, above).”

“Cheap houses, food, and water, something the rest of the country will be begging for in four years. Energy? Local natural gas for heating. Coal for generating electricity. Schools? Head for the burbs, away from the big city. Culture? Second or third tier museums. But world class medical (Mayo, Cleveland Clinic).”

“And when wages drop and raw materials rise, and it becomes economical to manufacture in the US again: Dust off the old mills and plants. Ocean transport? Been happening for decades from the major great lakes ports.”

“Weather? Ha ha, you’re eating, you’re working, you got water, you’re warm and sheltered. Deal with it.”

“There’s a reason the Great Lakes states grew up like they did well into the 20th century. The real bubble is in the southwest, west coast, florida… only those are slow-moving bubbles lasting several decades. The tide will return to the great lakes.”

What do you see in your housing market? Builder problems? “Last year, when Terry & Terry Inc. was developing Cross Creek in Oakland, the company’s executives projected they would have three or four builders each starting a handful of homes in the subdivision by now. But only three homes by one builder have risen in the 129-lot development, which sits just off Tenn. 194 in Fayette County.”

“Terry Pagliari of Terry & Terry said the trio of homes sitting alone on an otherwise empty parcel is a disappointing sight. Pagliari said the company continues talking with other builders about lots, but the result is always the same.”

“‘Each one said, ‘Well, I like the subdivision, but I’ve got some spec homes I need to get rid of so I can get some more loans; until I get rid of my specs, I can’t get any more loans,’ Pagliari said. ‘That’s kind of what’s happening. It’s not a lot of fun right now.’”

Or foreclosures? “Bob Slade, deputy public trustee for Garfield County, said for 2007, the Carbondale area, denoted by the 81623 ZIP code in Garfield County only, had 10 foreclosure proceedings, representing 12 percent of the foreclosures in the county.”

“‘At this point, I’m showing four actual foreclosures in Carbondale this year,’ Slade said. An interesting sidelight, he said, is that two of these involve expensive dwellings - one a $1 million house and another that was priced at nearly $800,000.”

“Bob Horton, executive director of the Springfield-based nonprofit Urban Neighborhoods Alliance, said the region, like many parts of the country, is facing its highest number of home foreclosures in 10 years.”

“‘(Foreclosures) are not discriminatory,’ Horton said. ‘It’s not just the north side or the south side, east or west. It’s citywide and it’s all over the county.’”

“On Saturday and Sunday, Real Estate Disposition Corp. is going to try to auction off more than 450 homes across metropolitan Phoenix for the lenders that took them back.”

“These foreclosure auctions, which started in the Valley in December, are becoming regular events on the weekend as foreclosure rates climb. A few homes on the auction menu for this weekend have starting bids as low as $1,000.”

“One of the properties featured in this weekend’s sale is a condo in downtown Phoenix’s Orpheum Lofts valued at $299,900, but the starting bid is only $79,000.”

A letter to the editor? “We are being forced to foreclose on our condo, but unlike many other news stories you’ve done, we’ve done everything right…The increasing debt our mortgage is putting us into is making us struggle to survive. Our mortgage lender is crooked and dishonest.”

“Our broker assured us we would be able to refinance before any significant change appeared in the payment amount. Being new and naive to the intricacies of the housing market, we believed him. We certainly did not purchase outside of our means; we just believed, as everyone else did, that we would be able to refinance when the time came.”

“Since the market has plummeted, the value of our home has significantly decreased, and our interest rate has increased at an astronomical rate. We no longer can afford our expenses.”

“We are going to lose our condo, and it’s not fair. These banks and mortgage brokers took advantage of a booming market and idealistic buyers. Someone needs to be our voice to tell these banks that what they’re doing is wrong. - Delray Beach.”

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