The Housing Bubble

The Times Tribune reports from Pennsylvania. “A white banner advertising Silvana Hogben’s real estate business overlooks the waiting area. It begins: ‘Su casa, la inversion mas importante de su vida,’ relaying to the office’s mostly Hispanic clients that “Your house is the most important investment of your life.’ The phones are silent. The cooling seen in once-scorching housing markets in Nevada, California and Florida has settled on the local market as well. It cuts into Ms. Hogben’s business, sends waves through her personal life and weighs heavily on her consciousness.”

“‘I’m getting more nervous now. I’m getting nervous because there’s really nothing going on,’ she said. ‘Personally, I want to hang in there. I still have a few deals, but it’s not the same volume.’”

“After the Sept. 11 terror attacks, she saw the need in the Hispanic community as house hunters sought an alternative to living in New York City. Ms. Hogben prides herself on being the area’s first agent catering to that demographic, which she estimates still comprises 90 percent of her customers.”

“Potential customers are saving less and have more difficulty finding loans in today’s stressed financial markets. Many settle for apartments instead of purchasing homes, and those few who do venture forth into the market settle for cheaper houses, meaning leaner commissions.”

“‘Lots of people are losing their jobs. It’s sad because these people are so desperate, but it’s also going to hurt me,’ said Ms. Hogben. ‘I was talking to some of my colleagues, and everybody is very, very concerned, worried about the situation.’”

“‘Before I used to pick people up and drive them to the houses I was showing,’ she said. ‘Now, I just tell them, ‘I’ll meet you there.’ You’ve got to cut back on everything pretty much. Gas prices are killing everybody.’”

The Detroit Free Press from Michigan. “Up North destinations such as Traverse City, Petoskey, Charlevoix and Harbor Springs still command serious money in resort real estate. Those areas, in demand from more than just Michiganders, have largely avoided the worst effects of the housing bust. The tide is starting to turn, however, as the northwest corner of the Lower Peninsula is beginning to see the impact of the national housing industry troubles, said Dan Elsea, president of brokerage services for Real Estate One in Southfield.”

“‘Traverse City, Petoskey and those areas have gotten more independent from metro Detroit economically. They were sheltered a little bit from the changes,’ Elsea said. ‘But Chicago, St. Louis and other feeder markets for those areas have been hurt,” reducing the number of buyers in the market.’”

“Housing inventories in five counties in northwest Michigan have risen 68.5% in the past year and have nearly doubled over the past two years. There was a 35-month supply of single-family homes on the market at the end of May in Benzie, Kalkaska, Grand Traverse, Antrim and Leelanau counties at the current sales pace, according to Real Estate One research.”

“And the number of properties closing at the end of May compared with a year ago was down by 40%. More revealing is that while the median price of homes listed on the market in the counties has risen by 1% to $199,900 in the past year, the median price of those closing fell by 8.3% to $154,900 since May 2007, indicating sellers are accepting price reductions to sell.”

“Realtor Charlotte Arnold said the buyer’s market means people can get on the water for less. But they can’t do it for 50 cents on the dollar. ‘Some people are coming into the market expecting to find a $1-million home they can get for $500,000. That’s not going to happen,’ Arnold said.”

“But they can still get a deal on homes in that range. Arnold has a listing with 160 feet of Lake Michigan frontage for sale in Kewadin. It was once listed at more than $1 million and now is priced at $849,000 after three years on the market.”

“‘It has a sugar sand beach for miles, thick woods and every home in that neighborhood is worth $1 million plus,’ she said. ‘We’ve really reduced it to a price to create some interest. The land alone is probably worth that.’”

“Michael Fournier remembers getting calls years ago at his East Tawas real estate office from people wanting a lakefront cottage for around $100,000. ‘We used to laugh,’ said Fournier. ‘Now, we have some.’”

“The housing bust, credit crunch and $4-a-gallon gas have hit the second-home market hard Up North. For those buying lakefront or a cabin in the woods, sale prices are reduced and often include extras that would have demanded premium prices just two years ago.”

“Brad and Stacey Gingrich of Charlotte near Lansing are trying to sell two homes Up North. Brad has been trying to sell one in National City since he and Stacey married in 2002. That’s leased now but may go back on the market again soon. And they are trying to sell their home in Au Gres that’s on a canal leading into the Saginaw Bay for $189,975. The three-bedroom, 1 1/2 bath home was appraised for $234,000, but the Gingriches keep dropping the price.”

“They lived in the Au Gres home until 2006, when Stacey Gingrich transferred to the Lansing territory for her job. ‘We will have to write a check to sell it,’ Brad Gingrich said. ‘I can’t afford to pay three mortgages and three sets of taxes. We pay $700 a month in taxes alone.’”

“The situation is similar in the Houghton and Higgins lakes area, said Lexy Van Deneede, a real estate agent and office manager for Real Estate One, Points North. Home prices are down by at least 18%, she said. ‘The second-home market up here has never been overpriced,’ she said. ‘We cater more to the blue-collar crowd.’”

“And that crowd is thinning. Van Deneede said there were 35% more homes on the market this year than two years ago in the lakes area as laid-off autoworkers put their second homes up for sale. She counted 1,250 houses on the market right now, with 166 properties boasting waterfront on Higgins, Houghton or James lakes.”

“‘There isn’t a street you can go on where there aren’t any houses for sale,’ Van Deneede said.”

“Linda Popevich, an Ann Arbor-based restaurant industry consultant, has been trying to sell her cottage on Houghton Lake for nearly three years. She’s traveling more for her work and does not have much time to enjoy the cottage.”

“It was listed at $235,000 and now is priced at $179,900, making it one of the lowest-priced on the lake. The 750-square-foot cottage comes furnished and has a new roof, a dock and a beautiful lakefront view. ‘I have had offers,’ she said. ‘I’ve had curious offers like people wanting to swap out cottages with me or buy it on a land contract. I just need to sell it. I want someone else to enjoy it.’”

“Other sellers are pricing aggressively for faster sales. Betsy Levasseur bought a home in Wilbur Township near East Tawas on five wooded acres 25 years ago to retire in with her husband. After her husband died in 2006, she couldn’t face going up to the house by herself. She debated for a year and then decided she had to sell it.”

“While it was appraised for $229,000, she listed it two months ago at $199,900. It has two bedrooms and 1 1/2 baths and is 1,846 square feet. So far, there hasn’t been much interest in the property. ‘It’s close to East Tawas. The beach isn’t too far. There is so much to do up there,’ Levasseur said.”

The Post Crescent from Wisconsin. “The open concept ranch has new carpeting and fresh paint, extras like a gas fireplace, and it’s listed at $159,800, well below a real estate agent’s estimate. The Appleton house has been on the market since last fall.”

“‘It’s taken longer than I hoped,’ said homeowner Phil Zoellner, who is listing the house for sale by owner.”

“For sellers like Zoellner, better days may be ahead. According to one analyst, a market recovery could begin within months. David Clark, a professor of economics at Marquette University who analyzes market data for the Wisconsin Realtors Association, said he expects the Wisconsin housing market to bottom out in the second or third quarter of this year. He expects state markets to pick up later this year.”

“‘It won’t surprise me to see the first quarter of 2009 be better than the first quarter of 2008,’ he said.”

“Speaking Friday at the 2008 Wisconsin Housing Conference at the University of Wisconsin-Madison, Morris Davis, an assistant professor of real estate and urban land economics at UW-Madison, said Wisconsin has a higher income-to-housing-cost ratio than other areas of the country. He said that’s not necessarily a good thing for the state’s future.”

“‘I look at these numbers to be disturbing,’ Davis said. ‘It means people aren’t rushing to move in. Why aren’t people moving in if it’s a great place to live?’”

“Clark called the first two months of 2008 ‘extremely weak,’ which he attributed in part to the weather.
‘People don’t like to look for houses when the snow is flying,’ he said.”

“Clark said Wisconsin housing inventories have grown, but a recent Realtors survey indicates sellers are becoming more motivated. ‘It’s taken a while for sellers and buyers to get on the same page,’ he said. ‘Buyers are quick to pick up on a softening market. Sellers are reluctant to believe that the prices they could have gotten two years ago are no longer accurate.’”

“Zoellner has learned two things in his time as a seller: ‘They expect everything to be perfect and they expect it to be a good deal. It’s a buyer’s market.’”

Readers sugested a topic on future concerns. “I would like to know what future scenarios keep people here potentially awake at night. What kinds of unfolding events related to the housing bubble seem rather plausible and make people’s anxiety go up? Thanks!”

A reply, “Unplanned pregnancies and having to buy a house in this current market.”

One from Texas, “Crime, crime, and more crime. The local news last night did a story highlighting the almost 40% surge in property crime since the beginning of the year. Panhandlers (some proffesional, will get in their BMW parked out of sight and drive off at dusk) on almost every street corner, some brazzen enough to assault your car and/or you in it. Several weeks ago, I went to my first ‘gun show’ to price various firearms. For those who have never heard of a gun show, imagine a traveling flea market with guns, really popular in Texas. I’ve been eyeing a 12-gauge pistol grip Mossberg for the house (wife, two kids at home) and may even see ’bout one a dem fancy conceal/carry permits for a pistol in the family car.”

One added, “Boy do I hear ya! I’ve recently started locking myself in my car when I stop at a gas station after starting the pump because I keep getting accosted by individuals wanting spare change cuz they’ve ran out of gas and can’t get to work.”

Another posted, “I worry about property crime…but I’ve always been that way. I’m in a temporary housing situation now, but once I get settled in to a permanent location (probably some time later this year or early next) one of the projects on the top of my list is a total surveillance system around the entire property.”

An economic angle, “The collapse of a huge number of small businesses and the impact this will have on the economy as we may find out that too many of them were focussed entirely on wants not needs. I’m talking about closet organizers, scrapbook suppliers and consultants, gift basket makers, spas, anything related to the wedding industrial complex, doggie day care and cat psychics, college consultants that guide children through a 10 year planning process to get into Tufts, etc.”

“A lot of these are classic second earner jobs and our current standard of living requires the second income. What if it all goes poof? There is the slightest possiblilty that it will all match up - that the people who bring in the second incomes will loose their jobs but everyone will be lowering their standard of living (if you think life is better with a $100 haircut instead of a $20 one) all together and all will be well - sort of like JP Morgan buying Bear Stearns and all of a sudden they don’t have to worry about their risk as counterparty to the credit default swaps backed by Bear. But I don’t think so.”

One replied, “These businesses seem to go poof on their own all the time anyway. I can’t believe all the dumbass flower shops, boutique furnishing joints and niche restaurants are started up by - who, doctors’ wives? Lawyers wives? Or some worthless flake who came into big bucks somehow, only to blow it on an ill-conceived business? They come and go all the time here. It shouldn’t matter to me, I guess, but I keep wondering what on earth are they thinking - and when they go to sell the business, why should anyone help them get out from under it?”

“There was a gourmet place started here by a local guy who was a chemistry scholar who then went into some business venture, investment banking or whatever, then came back here to start what he thought was God’s Gift to Greek & Italian cuisine. Only he knew how to prepare the dishes properly! He spent a fortune on the place, because he was going to do it right! But the food was just,…average. Place was packed for a couple months like any new restaurant. A year later he has to close up. The place (an old JB’s Big Boy) is still for lease two years late. I just shake my head at this stuff.”

“Guess that’s why I’m not in business for myself.”

An observation, “The comment about doctors is true. We have the first panic sell on our street (all offers considered, 20% off, etc the 1st week he put the place on the market for sale). Turns out this person is a doctor and decided to invest (apparently every cent he had and all he could HELOC) in a new specialty restaurant and lost everything. The restaurant is now boarded up and he and his wife moved out of their house after dark one night last week.”

And another, “You only have to watch ‘Ramsey’s Kitchen Nightmares’ on BBC America to see that overweening egos and restaurants are the perfect way of stripping yourself of your nest egg.
The majority of restaurants never make it to thier first anniversary. Its hard work, and not suited to dillitantes.”

One was specific, “Technology failures, power delivery failures, information stream failures, water delivery failures, earthquake, famine, revolution, flood.”

The Tucson Citizen “Crappy economy? Get used to it. You can even call it a recession with the blessing of University of Arizona economist Marshall Vest. Vest, well known for finding optimism when others see gloom, went right to the R word Wednesday morning when he and fellow UA economist Gerald Swanson gave the summer version of their twice yearly economic forecast to 400 local business leaders.”

“‘Let’s start with the economy has slipped into recession,’ Vest said. ‘It’s a full-blown recession.’”

“Vest said Arizona is one of nine states in recession. The others: California, Nevada, Florida, Minnesota, Wisconsin, Tennessee, Ohio and Rhode Island.”

“‘Housing is the biggest challenge for us,’ Vest said. “We’re in the biggest decline since World War II. There’s no sign of a bottom yet,” Vest said. “We will work through it. By some accounts, the credit crunch is still building. We may be halfway through. I don’t know how you can tell that.’”

“‘We know something is wrong,’ Swanson said. ‘We’re just not sure how to get out of it.’”

“There have been substantial local job losses in construction, the leisure sector, professional and business services, the finance sector and manufacturing, but data shows higher levels of education are leading to better job security. Swanson said the unemployment rate for high school dropouts is 21 percent, while for high school graduates it’s 12.9 percent, for those with some college it’s 6.9 percent and for those with bachelor’s degrees or higher it’s 3.1 percent.”

“Still, consumer spending is down across the board. ‘We have a rather strange economy,’ Swanson said. ‘The new mantra is ‘Honey, what’s for dinner?’ ‘Whatever is on sale.’”

The Herald Tribune. “The pain of the great plunge in sales and prices is still being felt in Cape Coral. While it might barely register among the ritzy homes in the southwestern region of the savanna-like city, it is crushing those who invested in the more generic houses in the northern reaches.”

“Business has been extremely good at Larry’s Estate Jewelry and Pawn shop. ‘Anybody that was in the real estate market, they make up half our customers,’ said David Close, manager of the shop for 15 years. ‘It was never like this.’”

“When pawning merchandise, the seller must list his occupation. More these days, it is ‘mortgage broker’ or ‘builder’ or ‘developer.’”

“Close said he has never had more one-carat diamond rings being pawned by those who now need money for mortgage payments, rent or gas. Amid the slot machine for $169, the air compressor for $350 and the fishing rod and reel for $79, sits an impressive row of jewelry cases filled with rings, gold necklaces and pricey ankle bracelets. Most of the items were not pawned: They were out-and-out sold, something Close says was not commonplace before the real estate downturn.”

“‘It’s been building toward this for the last two years,’ Close said. ‘The mortgage brokers we see in here might have made $5 million three years ago, but it was all in paper, not cash.’”

“Entering Cape Coral’s northeast section on Burnt Store Road…more houses come into view and then they become numerous, all fairly new and most with shiny aluminum pool enclosers. Some sit unfinished, abandoned by builders gone bust. Five miles in, newly planted trees line the median of the road and the occasional cluster of homes gives way to identical townhomes, packed tightly.”

“Cheryl Custer works as a cash register clerk. Custer, a Cape Coral native, spent nearly two decades as a mortgage processor. She burned out toward the end of the housing boom, but still has a lot of friends in the business. She had to take the clerk’s job because her husband, a builder, has been out of work for months.”

“‘It’s the worst I’ve ever seen it,’ Custer said. ‘We have people coming in here every day who tell me they are just about to get kicked out of their homes and head up north.’”

“Custer’s home has dropped in value from $287,000 to $102,000 in two years. ‘We’ve been living off our savings, which are now like this,’ she said, using thumb and forefinger to make a zero. ‘We are just trying to hold onto our house.’”

The Tallahassee Democrat. “As the economy takes a dip, the Big Bend Crime Stoppers’ cash rewards for tips that lead to arrests are looking like extra income to some area residents. ‘People are looking for other avenues to generate revenue, and reporting crime is a nice clean way to do it,’ said Allen Stucks, executive director of Crime Stoppers. ”We have seen a jump in more people paying attention to crime where in the past they considered it someone else’s problem.’”

“Crime Stoppers gives out rewards of up to $1,000 to anonymous tipsters when their information leads to arrests. From October 2007 to April 2008, people called in 900 tips to the hot line. In the same period the previous year, people called in about 400 tips. Arrests resulting from those tips increased from 26 to 124. The number of cases cleared by those arrests also increased, from 68 to 232.”

“The poor economy is driving people all over the country to phone in more Crime Stoppers tips, said Elaine Cloyd, president of Crime Stoppers USA. ‘I think we’re seeing it particularly in areas throughout the south and the west, where there are more home foreclosures and where there’s higher unemployment,’ she said.”

“Crime Stoppers’ cash rewards are usually between $300 and $700, said Tallahassee Police Officer Kathy McGhin, who works with Crime Stoppers. McGhin said she has heard some tipsters say they are turning in people they know because they owe them money.”

“‘I’ve had a couple people say, ‘I wouldn’t have done this, but I need the money,’ McGhin said. ‘Some people were very appreciative that they got a reward.’”

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