The Housing Bubble

It’s Friday desk clearing time for this blogger. “The number of residential homes for sale through the Coeur d’Alene MLS has topped 4,000. At the same time, home sales remain soft. ‘They are, but we’re still in what would be considered a normal market,’ said Kim Cooper, spokesman for the Coeur d’Alene Association of Realtors. ‘We’ve returned to 2002 levels, the year before the rapid escalation of home prices.’”

“‘There was a speculative market with unsophisticated real estate investors,’ Cooper said. ‘They were playing it loose and buying homes 10 at a time and trying to turn them. Now, the market has petered out and they’re stuck with those homes.’”

“Homes that are sitting unfinished and vacant because of the depressed housing market are causing problems for people with finished homes that are on the market. ‘It’s hard to sell a house nowadays with the real estate market being as tough as it is,’ says Pete Mocho, who’s trying to sell his Northeast Heights home.”

“Mocho has been trying to sell his home for about a year now. He says one realtor refuses to even show his home because of the unfinished neighboring house. ‘And when you have something as obviously hard to look at as that,’ Mocho adds, gesturing across the street to an unfinished, two-story home, ‘it makes it a little harder to sell.’”

“There are more than 40 vacant homes on the market in North Albuquerque Acres with prices ranging from $500,000 to $1.5 million. Builder Patrick Apodaca estimates there are about 100 unfinished homes across the city, the most he says he’s ever seen.”

“‘I don’t know if it’s because businesses are going bankrupt, but I think maybe contractors overextended themselves,’ he says.”

“Most Birminghamians familiar with Southside’s Highland Avenue neighborhood have seen the Capri Condominiums. During construction, those behind the project insisted that the market demanded precisely this sort of condo complex, and they stuck with that sales pitch.”

“Even as the housing market began to waver-but before it plunged-real estate agents associated with the Capri claimed that, in Birmingham, the market’s demand for condominiums exceeded the supply.”

“Babs Simpson, a real estate veteran who specializes in condos and has sold them for decades, agrees that condo prices have been dropping, due in large part to a glut in available units and high asking prices.”

“‘I think the prices were way too high,’ Simpson says. ‘The reason a lot of prices are going down is not the condo itself, it’s just oversupply. We’re oversupplied in every area of real estate.’”

“How big has New York City’s foreclosure problem become? ‘Two years ago, there were just a few selected ZIP codes where [foreclosures] were bad,’ says Matthew Haines, (who) tracks foreclosures in the five boroughs. ‘Now there are whole areas - areas that contain 12 or 15 ZIP codes - that are really bad.’”

“‘I have a listing in St. Albans, [Queens],’ says Anthony Carollo of Carollo Real Estate. “Their asking price was $399,000 [seven months ago], and they couldn’t sell it. We got it in April, and we started at $369,000. We’ve been going up against homes that banks were willing to sell for $75,000 less.’”

“Both Suffolk and Nassau saw an increase in foreclosure activity last month, compared with a year ago, according to RealtyTrac. And some homeowners are now choosing to walk away from their homes once they’re in foreclosure, as they realize it’s just too expensive to stay.”

“Hicksville bankruptcy attorney Scott Schneider noted that more people are also choosing not to try to save their homes, filing Chapter 7 bankruptcies instead of Chapter 13, which would allow borrowers to stay in their homes. It’s cheaper for some people to rent, rather than pay off a delinquent mortgage and a bankruptcy trustee, he said.”

“‘I think we’re still at the early stages,’ he said. ‘It’s still going to go up and it’s going to get worse.’”

“With mortgages hard to come by, Connecticut home prices are feeling the heat. ‘I think you have a lot of people who can’t afford to get a mortgage,’ said Vince Valvo, group publisher for The Warren Group. ‘The biggest problem is that one-third of the market got completely locked out. Subprime loans are gone.’”

“Part of the problem, he said, is so-called lis pendens filings, which are closely tied to foreclosures. The number of such filings, Valvo said, is now three-and-a-half times the number of properties being sold statewide.”

“‘People don’t want to buy a $250,000 house and, a few months later, see a similar house in their neighborhood sell for $150,000 in foreclosure,’ he said. ‘You feel like a chump. Until we get that chump factor out of the market, things won’t improve.’”

“Buying a house? Hold on…for a while. The Reserve Bank of India’s move to raise repo rates is likely to trigger a further dip in realty prices over the next few months.”

“‘We are heading for a major crisis. Prices have already crashed by 20 per cent. Nobody buys in a falling market expecting further correction. The repo rate will further aggravate the situation,’ said Arvind Goyal, who heads (a) Mumbai-based real estate company. Navi Mumbai, the satellite city developed to decongest Mumbai, is witnessing a real estate boom with more than 800 projects under construction.”

“‘Some of these projects are heading for a crisis due to lack of demand,’ said Goyal.”

“The average housing price in Shenzhen’s six districts dropped to 11,143 yuan (US$1,610.39) per square meter in May, down 23 percent from a year ago and 7 percent from April, according to a report.”

“‘Despite the rise in transactions, I’m not optimistic about Shenzhen’s housing market in the near future,’ said Wang Shitai, brand manager of Sunstars Real Estate in Shenzhen. ‘Developers will have to slash prices further in order to boost sales to maintain their businesses.’”

“‘More investors are expected to stop paying the mortgages later this year and early next year because they simply can’t afford it,’ said Guo Shiping, an economics professor at Shenzhen University. ‘Housing prices will slide further after the Beijing Olympics and banks will feel the pinch. The number of speculators who can not afford mortgages will peak next year.’”

“As desirable a city as Plano has become, Hilltop Lane is lined with broken dreams and a sea of For Sale signs. Since January, almost half the homes in the 3500 and 3600 blocks of Hilltop Lane have sunk into foreclosure. Many of those homes once belonged to a single investor, who lost them earlier this year.”

“‘I’m not upset,’ said Christel Young, a new home buyer. ‘Other people might be, but I’m not. I got a good deal. I believe it was appraised at $139,000 and I got it at $109,000. So yeah, a good deal.’”

“Some signs of struggle in Utah’s housing market were on full display Thursday at one of the first large-scale bank foreclosure auctions held in the state this year, and the first ever by Ogden-based Centennial Bank.”

“Fifty-two properties were put up for bid at the Wells Fargo Building located on Main Street in downtown Salt Lake, many of them casualties of the bursting housing bubble.”

“Eric Nelson predicted that because of the economy, his company would probably be doing auction sales in Salt Lake every 60 to 90 days for the next three to five years. ‘The high-end market is just crashing in the Utah area right now, with homes over a million dollars, and there will be a surplus of them, probably a 5-year supply by October or November,’ he said.”

“Veteran builder Cory Olsen won the auction for a Bluffdale house valued at $726,000 for just $275,000 and felt like he got an excellent buy. ‘I didn’t intend on bidding on that one, but the number stayed really low,’ he said. He said his ultimate plan is to turn the property around and sell it for a profit.”

“‘When you buy it at this price, you can do a lease option and still have a positive cash flow on the monthly income,’ Olsen said ‘It almost feels criminal to take advantage of buying things at pennies on the dollar. This stuff is selling for 40 to 60 cents on a dollar.’”

“Over a million homes are now in foreclosure, the highest rate ever recorded. Nearly 3 million homeowners have now missed at least one payment. As of the end of March, one in 11 loans were in trouble.”

“But until Ed McMahon went on ‘Larry King Live’ last week to talk about his own housing trouble and, according to The New York Times, ‘humanized’ the problem, all of that just seemed like, well, statistics.”

“McMahon explained that, despite earning millions during his career, he is now about $644,000 behind on his mortgage payments. McMahon bought the house in January 1990 and, despite Los Angeles home prices being up 106 percent since then, reportedly still owes about $5 million on it. In other words, like so many other Americans, McMahon used his home as an ATM over the years.”

“Unlike many others, McMahon was not looking for a handout or to put the blame on anyone but himself. ‘Well, if you spend more money than you make,’ he told Larry King, ‘you know what happens.’”

“Unfortunately, that’s exactly the problem: Most people have no idea what happens when they overspend. And even if they do, they’re not willing to take responsibility for their own actions. ‘How can this be?’ they demand. ‘I was guaranteed the American dream! I was told to buy as much house as a bank would let me, and then take out another loan to make the house even bigger. I was told to buy big televisions and luxury cars and to take great vacations and drink great wine.’”

“It all went according to plan until real life intervened.”

“The Retreat, a gated golf course community that boasted the Inland region’s first million-dollar tract homes, has been hit by a tsunami of foreclosures, proving that even the most elite neighborhoods can’t escape the devastation of falling real estate values.”

“Today, however, about every fourth or fifth house at The Retreat is in some stage of foreclosure and home prices have been slashed nearly in half.”

“The average asking price for homes in The Retreat plunged 46 percent from an estimated $1.3 million in June 2006 to $705,000 today, according to data recorded with a MLS. Six resale transactions in the community this year averaged $675,916 on houses that sold for an average $1,123,000 at their peak, a decline of 40 percent.”

“And prices continue to drop, with about seven homes currently listed between $475,000 and $500,000, said Pat Patton, an agent who has listings at The Retreat.”

“Investors hoping to flip the houses for a quick profit let them go into foreclosure when the market collapsed, according to local real estate agents.”

“Inland Empire economist John Husing, one of several economists who had hailed plans for The Retreat as proving the maturity of the Inland real estate market, now says its debut was sullied by these unexpected forces and a subsequent tightening of lending.”

“Many people who bought homes at The Retreat to live in also considered them investments and have been disappointed.”

“Michael Kroitor said he and his wife, both Canadian immigrants, put $96,000 down in June 2006 to buy a $1 million, four-bedroom house in The Retreat. They were convinced it would be a great short-term investment.”

“Kroitor said he figured his family, including four children, would live at The Retreat for two years, then they would sell at a profit. Meanwhile, he said, they were willing to make monthly mortgage payments of $8,500, or two-thirds of their household income, on top of property taxes.”

“‘We didn’t think the value would go down at all … There was no prevailing feeling of doom,’ he recalled.”

“Tony Muriel said when he and his wife, Carmen, put down $350,000 to buy a $1.3 million house two years ago, they planned to stay 10 years. By then they expected their two children would be off to college, and their home’s value would increase to $5 million and become their retirement nest egg.”

“The Muriels, like many of their neighbors, are upside down on their investment, owing more than $1 million on a house that most recently was appraised for $760,000. But with so much of their savings at stake, they said they are not moving.”

“‘We have to make the payments and continue,’ Tony Muriel said.”

“The couple said they still enjoy their house with its super-size kitchen, koi pond and many other amenities, and their attractive neighborhood and good schools.”

“Time should solve their real estate woes, Carmen Muriel said. ‘In four years, everything should be different,’ she predicted.”

The Sun Sentinel reports from Florida. “Home prices in South Florida ‘easily’ could be 20 percent to 30 percent higher by 2013, the chief economist for the National Association of Realtors said Thursday. Yun called 2008 a ‘year of cleanup’ and says the second half will be better than the first because mortgage markets are improving nationwide and across South Florida. Foreign investors and Baby Boomers will boost home sales during the rest of 2008, he said.”

“Yun said price increases could happen here again as soon as this year. A decade from now, sellers and agents will look back on this as a ’small blip on the radar screen,’ Yun said. ‘The long-term fundamentals are terrific.’”

“But real estate observers say he is overly optimistic because he works for the national Realtors’ group, whose goal is to promote home sales. ‘He does his best to present a positive spin on data that’s not based on reality or fact,’ said Delray Beach housing analyst David Levin.”

“‘There’s no definitive data that says Baby Boomers are going to choose Florida. Florida ain’t so cheap anymore,’ Levin said.”

From Reuters. “There are signs the subprime crisis may be peaking, Lawrence Yun told a meeting of real estate professionals in Coral Gables, Florida. ‘I anticipate the subprime delinquency rate to continue to rise for the rest of the year and probably into the first quarter of next year,’ Yun said.”

“The delinquency rate on subprime loans is running around 20 percent. ‘I would not be surprised if it reached even closer to 25 percent,’ he said after the speech. ‘But the pace of increase will be moderating.’”

“How much, he said, will depend largely on housing prices.”

“With U.S. housing market activity at a 10-year low, pessimistic ‘psychology’ is driving the market, said Yun, who represents the largest U.S. real estate agents group and is known for his optimism despite the worst housing downturn in generations.”

“He called Florida’s property market turmoil a ’short-term slump’ resulting in part from ‘gamblers’ speculating on real estate, and from a ’short-term oversupply.’”

“At one point during the peak of the market, Miami, a city of about 400,000 people, had 60,000 condo units in some stage of planning or construction. Thousands of those units are due to come to the market in the next 12 months.”

“‘Location, location, location is making a bigger difference than ever,’ he said, forecasting that by 2013 property owners in Miami could see price appreciation of 20 percent or more from today’s levels.”

The Miami Herald. “Some South Florida borrowers who are in default on their home loans aren’t waiting around for their lender to begin foreclosure. They have beaten their lender to the courthouse by filing lawsuits.”

“‘These [borrowers] are basically sheep among the wolves,’ said Frank J. Ingrassia, a Margate lawyer who last week filed about 25 lawsuits on behalf of the borrowers against various lenders.”

“Similar suits are being filed around the country, said Ira Rheingold of the National Association of Consumer Advocates in Washington. ‘The fact that this was so prevalent shows there was a complete design flaw in the lending process,’ Rheingold said. ‘All of these borrowers didn’t make the same mistake.’”

The Herald Tribune. “In the midst of a residential property craze, the mortgage broker - cell phone memory clogged with lenders - was the one who could make the deal happen, just by knowing which lender was hungry for a deal, which program would work for which borrower, and who could close fastest.”

‘Since the real estate boom went into reverse, the number of people claiming to be mortgage brokers has shrunk dramatically. Those left are fighting to reinvent their financial lives.”

“For six and a half years, Joe Adamaitis had a three-office mortgage broker firm based in Bradenton. He closed the doors this spring.

“‘I am losing borrowers left and right,’ Adamaitis said recently, before taking a new job in downtown Sarasota.”

“Operating as Direct Mortgage, Adamaitas said there were some loans he decided were just too risky to write, but others that he pushed through despite their implausibility.”

“‘I had young kids coming in to me trying to buy these huge homes,’ Adamaitis said. ‘I didn’t feel good about it. But if I didn’t do it, somebody else would.’”

“The relentless rise in foreclosures in Manatee, Sarasota and Charlotte is still causing problems for borrowers and bankers alike. A total of 2,161 filings — default notices, auction sale notices and bank repossessions — entered the court systems last month. That compared with 1,934 in April and 1,432 foreclosures a year ago.”

“‘I don’t think we’ve seen the bottom yet,’ said Nancy Detert, a former mortgage broker running for state Senate who is pitching a ‘community downpayment assistance plan.’”

“‘We have so much empty supply,’ Detert said. ‘It is devaluing the houses owned by the rest of us and devaluing whole neighborhoods. If we took a sponge and sponged up some of the supply, we’d have more demand.’”

“First Priority Bank is certainly not the only local bank suffering from the popping of the real estate bubble and a meteoric rise in foreclosures. But First Priority has been impacted far more than its Southwest Florida peers.”

“The bank reported $33.8 million in problem loans at the end of December — nearly 17 percent of its portfolio.”

“‘If you look at the occupations of the people on the board: you have a restaurant owner, an orthodontist, a general contractor, a real estate investor,’ said John Patterson, a Sarasota attorney and First Priority shareholder. ‘They represent a good cross-section of the community, but the one thing missing is someone with real experience in banking.’”

“‘There was no one who looked hard at credit, who questioned whether the bank should expand rapidly in a bubble market, who asked tough questions about what would happen if things went wrong,’ Patterson said.”

“‘I don’t know if anyone understood the depth of where the economy was going,’ said First Priority’s chairman, Alan Zirkelbach. ‘You look at Countrywide, Bank of America, all the banks. No one understood where this was going.’”

“Rather than slowly building relationships with borrowers, First Priority became a lender of last resort, said John Strickland, Patterson’s law partner and another First Priority shareholder. The bank’s board also did not understand the depth of the crisis Southwest Florida was falling into after the summer of 2005, he said.”

“‘Florida is a land of schemers and dreamers,’ Strickland said. ‘Every time we have one of these bubbles, there are people who believe it is never going to burst.’”

The St Petersburg Times. “In eastern Hillsborough County, the news was almost universally grim for sellers: The selling prices of homes dropped in nine out of 10 areas during the first three months of the year, an analysis of county property records shows.”

“‘We probably ended up looking at over 30 homes,’ said Vickie Levings, who in April bought a home northeast of Tampa with her husband. ‘Maybe two times we saw somebody looking at or leaving another house.’”

“The Levingses’ real estate agent told them she was lucky to bring one customer a month to a house for sale.”

“In Tampa, more than most metropolitan areas in Florida, the home building industry has been fueled over the years by an expanding economy and people moving here for new jobs, says Tony Polito, Tampa Bay director of Metrostudy.”

“‘The problem is, the 10-year expectation for Tampa was annual job growth of nearly 25,000 new jobs,’ Polito wrote in Metrostudy’s first-quarter report. ‘The actual annual growth was revised to a loss of 17,300 jobs.’”

“Eric Topp bought a house in New Tampa in April. The Topps found two similar houses and initially offered $405,000 for their second choice, Topp said. The counteroffer was $430,000.”

“Then they turned to their first choice, priced at $680,000. ‘It was a corporate relo that had sat empty for two years,’ Topp said.”

“They offered $415,000, plus an argument: ‘If you don’t sell at this price, we will buy the twin house nearby and instantly reset the market price for your house.’”

“It worked, Topp said. ‘They responded the same day.’”

The Orlando Sentinel. “It’s a familiar story line that is again repeating itself in the Four Corners area: British investors who put down thousands of dollars on vacation homes that haven’t been built and end up suing the developer.”

“At least four lawsuits have been filed in Polk and Orange counties in the past year against Tierra del Sol Resort, a development that was supposed to have nearly 1,000 condos and town homes. Buyers are suing for about $200,000 in deposits, plus legal fees. Others are demanding the developer build the homes for the original purchase price.”

“The homes of David and Sandra Clayton, who currently live near Amsterdam, were supposed to be built by 2007, a year longer than initially promised, their attorney, Matt Firestone, said.”

“After putting about $130,000 down for a condo and town house, the British couple filed a lawsuit in Polk County after Tierra del Sol also hiked the prices for proposed homes, Firestone said. The couple want their deposit, plus damages.”

“Clayton said he and his wife planned for a busy retirement, traveling after being frugal most of their life. They invested most of their money on Tierra del Sol and planned to rent their homes, he said.”

“‘We’ve spent a lot of sleepless nights talking about it and worrying about it,’ said David Clayton. ‘We expected a comfortable retirement.’”

“At least two other developments aimed mostly at British investors have foundered as the wave of real-estate speculation broke.”

The South Florida Business Journal. “A Florida appeals court has upheld a ruling in a precedent-setting lawsuit against Marina Grande Associates, a condo development company in Riviera Beach. The 4th District Court of Appeal has affirmed that buyers cannot cancel condo purchase contracts for rising insurance and utility costs, or for minimal increase in other costs.”

“‘We hold that the buyer may not cancel the agreement because the challenged amendments to the budget did not materially alter or modify the offering in a manner that was adverse to the buyer,’ the court said.”

“The ruling was immediately acknowledged and e-mailed around South Florida by attorneys handling hundreds of lawsuits against developers on the same grounds. The original case - D&T Properties vs. Marina Grande Associates - was considered a bellwether test in the collapsed housing market.”

The Tallahassee Democrat. “Every home has a story, and across the state many tell a tale about owners who could not make their mortgage payments. The all-too-frequent foreclosure story is how Patrick Coney found his house in eastern Tallahassee. Coney bought his three-bedroom home in January after a bank foreclosed on its previous owner.”

“Frustrated with paying rent, Coney started looking for his home last summer - around the same time the mortgage industry began to crumble after homeowners across the country defaulted on their loans. Undeterred, he set out to find a home that would mesh with his salary that is not too far from the county’s $43,000 average median income.”

“His mortgage payment is more than twice what he paid when sharing an apartment.”

“‘Even though I’m paying a good deal more, it’s my money (and) it’s not going to waste because this house will increase in value,’ Coney said.”

And please do not send in your housing bubble pics just now. I think that gallery has outlived its usefulness. I’ll come up with something better and a separate place for the ‘On The Road’ pics.

And for anyone wondering about my change in post timing, I lost the ability to date these just before I left for California. (Note to Wordpress pros, a little help?) Murphy was right after all.

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