The Housing Bubble

It’s Friday desk clearing time for this blogger. “Marin’s condominium market matched Bay Area trends. The median price dropped 26 percent to $410,000 in June from $470,000 in May. ‘What you see in Marin is an adjustment, not a depreciation,’ said Margaret Deedy, a broker in Greenbrae. ‘It’s a market where your houses are not appreciating. They’re basically holding level.’”

“Foreclosure properties accounted for 10.2 percent of Marin’s market. Big price drops are more an indication of the growing foreclosure problem than true market value, according to Corina Rollins, who has taught real estate at the College of Marin for more than 20 years.”

“‘You’re seeing fire sale prices offered by lenders that don’t want them and will get rid of them at most any price,’ she said, highlighting recent trends in Novato and Sonoma. ‘You’ve got too many properties that are getting dumped and too few selling. We’re going to see softening in prices. That’s absolutely a given.’”

“Kevin Kieffer, a Realtor who covers central and eastern Contra Costa County, said he is doing a brisk business in foreclosures. Many foreclosed properties are selling for half the price they reached during the giddy peak two years ago.”

“‘Right now, I’d say a Brentwood four-bedroom, two-bathroom with 2,600 square feet that was $650,000 a couple of years ago can easily be had for $325,000 and below,’ Kieffer said. ‘In Concord, three-bedroom ranch homes that were selling for $500,000; you can get those post-foreclosure for $225,000 or $250,000.’”

“‘This is pretty grim; double digits across the board,’ said Christopher Thornberg, principal at Los Angeles’ Beacon Economics. ‘It was eminently predictable if you had a realistic view of the world. I heard a lot of people say the Bay Area was never going to see prices fall, San Francisco was untouchable; in San Mateo, it was impossible; San Jose, not with all the tech money, blah, blah, blah. But prices at the peak relative to people’s incomes never made any sense.’”

“Even though it has little oil of its own, Dubai’s welcoming social and investment climate, along with special zones with independent laws, has turned it into a trading entrepôt on steroids, beyond Beirut in the 1970s and Hong Kong in the 1980s.”

“Economists warn of an unmanaged boom. But for Fares Noujaim, Merrill Lynch’s new president of the company’s business in the Middle East and North Africa, such concerns are for another day.”

“‘Bubble? What bubble?’ Mr. Noujaim asked, pressing his case that the global demand for oil, despite the recent dip in prices, would push its value even higher. ‘This will be the next Singapore or Hong Kong.’”

“The average price of square meter in the Russian capital crossed the line of $8,000, increasing within a week from July 7 to 13, by 1.0% to $ 8.068 per square meter. In Moscow Region, the prices in dollar grew by 1.2% (in ruble - by 1.3%), now an average supply price in the region is $3,400.”

“The market is showing no excessive activity, but, on the other side, it will be wrong to name the situation “calm” with a weekly increase of prices by 1.0% and the stably high demand, reports BPN.ru.”

“The Banque du Liban is considering requiring that borrowers and investors post the equivalent of 40 percent of the value of their approved property loans in a bid to prevent a real estate bubble, Governor Riad Salameh said on Thursday.”

“‘The prices of assets in general were undervalued until August 2007 but since that date we have seen an increase in the prices of real estate and property shares traded on the Beirut Stock Exchange,’ Salameh told The Daily Star in an exclusive interview.”

“Long-term figures have revealed the intensity of Whitehorse’s housing boom, with residential prices rocketing by more than 330 per cent in the past decade. Last year’s unprecedented rise capped the growth explosion, with the Valuer-General’s latest figures revealing the city’s median house prices jumped a further $106,750 in 2007.”

“Woodards Blackburn director Cameron Way said while the boom had eased this year, Whitehorse remained attractive to buyers. ‘Whitehorse has plateaued a fair bit, but that’s coming off 2007, which was a historic year of increase in value,’ Mr Way said.”

“On Whitehorse’s west, Surrey Hills and Mont Albert threaten to break through the $1 million bubble, with their 2007 median house prices at $995,500 and $961,000 respectively. Mr Way said Whitehorse remained a healthy market.”

“‘At the moment there are good opportunities for buyers and sellers because the market is back to more realistic levels,’ he said.”

“St. John’s is in the middle of a buying frenzy like never before, according to local realtors and a house price survey report released Thursday. Housing prices in St. John’s are generally up 23 per cent from this time last year, the report says.”

“Edwina Baldwin, president of the Newfoundland and Labrador Association of Realtors, says she works seven days a week. ‘There’s a lot of people looking for houses,’ Baldwin says. ‘Those people with children would probably like to get settled before the end of August, so that’s probably why it’s so much of a frenzy right now. Sometimes it cools down in the fall, but we have no indication that it is going to slow down at this moment.’”

“Avery Shenfeld, senior economist at CIBC World Markets, said there has been a noticeable softening of the Canadian housing market over the past few months. ‘Some of that is coming in cities where prices had gone through the roof in the previous one or two years,’ he said. ‘So we have to take small retreats in some of those markets with a bit of a grain of salt.’”

“The savings bank called Indymac in California was overcome with roughly six billion dollars in bad loans. Loans they made for houses to people who could not afford them. The scandal has ruined millions of lives.”

“Texas is living under a protective bubble, however, and depositors here have nothing to fear.”

“John West, President & COO Community National Bank in Midland, said, ‘The housing industry in Texas is strong and good. So, I would not worry about a savings bank in Texas. I would worry about a savings bank in California or Florida.’”

“‘A lot of the homes that are being foreclosed are homes that were purchased on speculation by investors,’ said Gavin Gee, the director of the Idaho Department of Finance. ‘A lot of it is due to speculation. Speculators would come into a new subdivision and just buy up 10 homes, and maybe never even rent those homes, just hoping to cash in on the rapid rise in values.’”

“In Southhampton, the median price dropped 8.6 percent to $891,000. Sales volume fell 35 percent. In East Hampton, prices fell 11 percent to a median of $1,000,000, Suffolk Research said. Volume there fell 40 percent.”

“‘People are buying with their heads much more,’ said Diane Saatchi, a senior VP of New York-based brokers Corcoran Group. ‘Last year’s $2 million house is still this year’s $2 million house. The difference is this year nobody bought it.’”

“Just 231 residential building permits were pulled in the second quarter of 2008 in Shelby County, a 72 percent decline from Q2 2007, according to the latest figures. ‘Because of the large inventories that were built up during the incredible market levels of 2006, builders still had a great deal of inventory, and as they are reducing it they are not replacing it,’ said Doug Collins, president of the Memphis Area Home Builders Association.”

“Sales have fizzled on all fronts, and the frustration is evident when builders talk about the market. ‘Nobody can sell a house - that is the problem right now,’ said Charles Morgan, president of Vintage Homes.”

“Scandals are a lot easier to cover up with big words than little words. Use words like ‘Securitization,’ ‘Government Sponsored Enterprises’ and ‘Collateralized Debt Obligations’ and you can cast the liveliest conversation into dead silence. Look past that mind-numbing jargon and you will see a $5 trillion scandal.”

“Fannie Mae and Freddie Mac were created to facilitate the market for mortgages. Uniquely charted by Congress, they were exempt for many years from the SEC’s disclosure requirements. Then they were caught keeping their books by their own rules, hiding $6.3 billion in losses.”

“House prices surged while abuses grew in securitized mortgage lending. All the while, they knew their friends in Congress would protect them.”

“In his farewell address, Dwight D. Eisenhower warned: ‘In the councils of government, we must guard against the acquisition of unwarranted influence, whether sought or unsought, by the military-industrial complex. The potential for the disastrous rise of misplaced power exists and will persist. We must never let the weight of this combination endanger our liberties or democratic processes. We should take nothing for granted.’”

“That worldly wise soldier understood the ties between defense contractors and their congressional allies. How much more must we today ‘guard against the acquisition of unwarranted influence’ by this financial-industrial complex.”

“The humbuggers, rouges and con artists are swarming like dung beetles as the housing market hits the fan. Across the nation, home and condo values have fallen to the early 2005 levels. But there’s still a lot of groan and pain remaining as prices fall to the 1999-2000 levels at which the average might family might be able to afford a home.”

“Still household income and net worth are falling like tears from a tall camel’s eye, and mortgage defaults are soaring at record rates with no signs of abatement.”

“Delinquency rates are over 4 percent and headed higher, the number of existing homes for sale increased to 11.1 percent this year, new home sales are down 12.5 percent from 2007 and the supply of new homes is at a record high. So even if demand stabilizes today, the mountains of unsold new and old homes will continue to exert downward pressure on prices.”

“I don’t trust the two dudes who’ve asked you to become a $20,000 limited partner. Their perspective on the housing market parrots that of the idiot economists at the National Association of Realtors whose perpetually rosy observations makes the NAR look like a ship of fools. It’s said, ‘You can observe a lot by watching.’ But those clowns at NAR are either blind or have their eyes shut.”

The Miami Herald reports from Florida. “The top job-loss state in the nation. Shrinking wages. Collapsing population growth. Record home foreclosures. Florida’s economy is not just firmly and bleakly in the red, it will likely stay that way until next June, according to the state government’s top economists. At the heart of the problem is the falling housing market, upon which Florida’s economy has a Monopoly game-like reliance. The economists projected new housing construction will fall to about 60,000 units this year, a decrease of 78 percent from a high of nearly 283,000 in 2005.”

“Florida lost more jobs in the past 12 months — 74,700 — than any other state in the nation. And the economists predict that more people in construction, government, manufacturing, financial services, transportation and warehousing will be out of work soon.”

“‘We were No. 1 in jobs created in the entire country,’ said Clyde Diao, one of Gov. Charlie Crist’s economists, referring to the booming economy in 2005. ‘Now, if you count the District of Columbia, we’re 51. What is important is jobs. If you don’t have a job, you can’t buy a house.’”

“In unusually plainspoken terms, the experts struggled with the data to figure out just when the state can wrest itself from a vicious cycle in which the lagging housing market triggers job losses that, in turn, worsen market conditions. They cut the their population-growth estimate for the state by nearly 100,000 from 300,000 over the next three years.”

“And the state has a surplus of housing units, especially in Miami-Dade, and Florida was No. 2 in foreclosures in the nation last month behind California. The combination — fewer home buyers and more foreclosures — will only increase the surplus housing stock and decrease the need for so-called ’starts’ in new construction, said Alan Johansen, the Senate’s chief economist.”

“‘What’s going to support the starts when there’s nobody here to buy them?’ he asked.”

“As foreclosures continue to mount, borrowers who have run out of options are turning to attorneys to fight back, and they’re living mortgage-free for months in the process. Although the chances of ultimately keeping a foreclosed home are slim, for $1,500 to $3,000 some lawyers are offering to defend borrowers in court, causing the wheels of justice to turn more slowly.”

“One way is forcing the lender to prove it owns the debt behind the mortgage by producing a promissory note. As mortgages were bought, bundled and sold off to investors, notes got lost in the shuffle, landing in vaults or warehouses around the country. Physically retrieving them can be difficult and sometimes impossible.”

“When lenders can’t prove they own the loan, lawyers can get cases dismissed, said Peter Ticktin of the Ticktin Law Group in Deerfield Beach, whose firm has advertised foreclosure defense services on television. He began taking foreclosure clients about eight months ago. So far, none of his cases have gone to trial. His clients are still in their homes.”

“‘People think I am dealing with a bunch of con artists,’ Ticktin said. ‘I’m talking about families, innocent kids, people who got led into deals that are causing them trouble.’”

“Angela Bellsanctious, of Lauderhill, admits she is careless about opening her mail and said her mortgage was bought by a new servicer without her knowledge. Because her payments were automatically withdrawn from her bank account, she didn’t know her loan wasn’t being paid until it was too late. On June 12, the home she had lived in since 1990 was sold. Last week she got notice from the Broward sheriff that she had 48 hours to move.”

“‘I was freaking out. I was praying and praying, and this lawyer came on the TV and said something about foreclosures,’ Bellsanctious said.”

“It was Ticktin, who for $360 got a judge to waive the writ of possession while he tries to sort out the problem with the lender. ‘I have no idea where I would have gone,’ Bellsanctious said.”

“Yet, for every legitimate miscommunication and misconduct by a mortgage lender, dozens of bogus defenses are filed, clogging up the courts, some lawyers said. Iris Hernandez, a lawyer who files foreclosures on behalf of lenders, said some local attorneys were known for filing boilerplate defenses without supporting their positions, acting for borrowers seeking to take advantage of the system.”

“‘Some people feel that ‘If I don’t pay for a year, I’m getting my down payment back,’ Hernandez said.”

“Marc Ben-Ezra, who also files foreclosures statewide for lenders, said the borrower who seeks to delay the inevitable can face consequences. Interest rates and other costs continue to pile up as the process drags on. Plus, homeowner and condo fees aren’t being paid, which places hardships on people who are paying their debts.”

“‘With every single day that goes by, they could be helping their clients get into bigger and bigger debt, rather than if they face the problems head on and resolve them as quickly as possible,’ Ben-Ezra said.”

From TC Palm. “A multi-million dollar auction at Tesoro in St. Lucie West proved homes across Florida won’t sell until homeowners face reality: They won’t get top dollar for their homes. The reserve auction, which allows sellers to accept or decline the highest bid, was a bust. Not one property sold to any of the 150 people in attendance on June 28.”

“The first and highest bid that was declined came in at $1.2 million for a four-bedroom, five-bath, furnished home that lists for $3.75 million. After the first bid of $450,000 on the second house was declined, the remaining properties were removed from the auction block.”

“‘Until sellers readjust their asking price, there will continue to be an overhang of properties in Florida,’ said Jose Boza, spokesman for J.P. King Auction Co., which hosted the auction and promoted it in a national campaign.”

“Reserve auctions aren’t working in today’s market and they’re wasting the sellers’ money, said Daniel Decaro, president and broker of Daniel Decaro Real Estate Auctions Inc., which handles a large percentage of Florida’s auctions. His firm auctioned Vero Beach luxury homes in April. ‘Sellers are in denial when it comes to the market,’ he said.”

From Local 6. “The Orlando housing market is beginning to stabilize, but it’s not improving quickly enough for people who have a house that has to sell now. The Local 6 report featured a three-bedroom, two-bath home in Orlando’s Almond Tree subdivision.”

“When the Howe family put its home on the market, it listed it at $425,000. The family’s Realtor, Art Kent, told them the price needed to come down — even though homes in the same neighborhood were selling for mid-$400,000 and even low $500,000 prices a few years ago.”

“‘What their home was worth when they bought it doesn’t matter and what their home was worth two years ago doesn’t matter,’ Kent said.”

“And price alone is not the only consideration. ‘It’s a price war, and it’s a beauty contest,’ Kent said.”

The Herald Tribune. “The region’s economic downturn is not paying attention to social status and is starting to take down commercial and residential developers alike. The latest casualty is Mark Ogles, a Manatee County commercial real estate developer who led Southwest Florida’s legislative delegation in Florida’s House of Representatives in the 1990s.”

“Since March, Ogles has defaulted on five loans totaling $2.24 million. Ogles says he is not ashamed of his debts. A recent divorce from his wife of 20 years that stripped him of more than half his net worth and the worsening global credit crunch made it impossible for him to come up with the capital necessary to stay afloat.”

“‘I was in, like, 10 projects,’ Ogles said. ‘I couldn’t get construction loans, and a year ago, I started going under.’”

“Former Florida Senate President John McKay defaulted on a $4.135 million loan in April after being unable to bring a 288-unit Lakewood Ranch apartment complex out of the ground. Even U.S. Rep. Vern Buchanan, one of the wealthiest members of Congress, has had to sell real estate at a loss. In November 2006, Buchanan sold a condominium at the Residences at the Ritz-Carlton in Sarasota for $300,000 less than he paid nearly two years earlier. Buchanan has since listed a waterfront house near Sarasota’s Stickney Point Bridge for $600,000 less than he paid for it in 2004.”

“‘It’s been hard for a whole bunch of us,’ Ogles said. ‘The bottom line is that nothing is turning, and whole lot more foreclosures are coming.’”

“The worst blow Ogles took was the foreclosure on his house on 137th Street East in Bradenton in July. Ogles had borrowed $327,600 against the house to support his business ventures and help pay money owed from his divorce. ‘What really killed us is that banks are unwilling to do any land or development loans right now,’ Ogles said. ‘All I can do is let go of stuff, and try to turn negative into positive.’”

The St Petersburg Times. “Desperate to salvage the $300-million Trump Tower Tampa with last-ditch financing, SimDag, the Tampa developer of the proposed deluxe skyscraper, sought a nine-figure loan from Providence Funding Inc. Providence bills itself as a faith-based lender. Its chairman identifies himself as ‘the Very Reverend Father Barney.’”

“With creditors baying for satisfaction last spring, SimDag principals Frank Dagostino and Jody Simon took the plunge. They paid Providence $150,000 as a ‘loan commitment fee’ to secure $200-million in financing for the 52-story condo tower. But Father Barney, the reassuring figure in the black clerical garb and white collar, is actually an ex-convict named Barney Canada.”

“The Providence Funding revelation comes as SimDag’s creditors gather today in a Tampa courtroom to press for repayment of nearly $40-million. It highlights the dubious sources and extreme lengths to which SimDag, rebuffed by conventional lenders, went in search of a substantial loan for a project largely given up for dead.”

“Donald Trump, who licensed his name to the tower in exchange for half the profits, sued SimDag for breach of contract more than a year ago, taking the wind out of the project. ‘If this information about SimDag is true, this is a very sad turn of events,’ Trump spokeswoman Rhona Graff said on Thursday.”

“Turning the tables, Father Barney’s Indiana attorney, Thomas Lewis accused SimDag of bad faith. He said the Tampa developers withheld information about liens on the Trump Tower lot during the loan application. Said Lewis: ‘These guys weren’t exactly saints on the other end of the deal.’”

The Tampa Tribune. “For two years, Edwin Letras searched for a home he could afford. Discouraged, he thought his three young children were destined to grow up in a two-bedroom apartment. But the now-sluggish real estate market has brought better luck for the family.”

“This weekend they’re moving in to a new, three-bedroom, 1,271-square-foot house in the Highland Ridge subdivision in Hudson. They paid $138,400. Husband and wife both work at the nearby, and several of their co-workers are buying homes in the subdivision, too.”

“‘This is great,’ Letras said while doing yard work last week. ‘Real estate is finally low enough. And we’ll already know some of our neighbors.’”

“Builders are rearranging floor plans, shrinking rooms, even changing the type of grass in the front yard to cut down on construction costs and offer more affordable prices. In some cases they’re figuring out how to pack in four bedrooms, a feature in high demand for targeted buyers: young families.”

“Smaller homes also can be profitable, especially at a time when builders have suffered from the housing bust: The price per square foot is about the same, said Kevin Robles, VP for the Tampa Division of Atlanta-based McCar Homes.”

“The larger homes in Highland Ridge were 1,800 to 2,200 square feet and cost $189,000 to $259,900 in 2007. Kevin Robles, VP for the Tampa Division of Atlanta-based McCar Homes. said McCar didn’t want to cut down on the number of bedrooms and bathrooms for the smaller homes, and they didn’t want to put in cheaper light fixtures, flooring and cabinets. Instead, it cut costs by putting the garage in the backyard, and adding a front porch instead of a back patio.”

“K. Hovnanian traditionally built smaller homes and catered to first-time buyers. As land costs rose during the housing boom, though, the company decided to concentrate on larger homes.”

“It’s changing directions again now that the market has slowed and land prices have fallen, Tampa division president George Schulmeyer said. The new communities the company is launching in 2009 will have homes starting at 1,130 feet and $117,900. It will continue to build homes up to 3,500 square feet and $360,000 in various neighborhoods, mostly in Pasco County, he said.”

“One thing the company is doing to trim costs is to cut out vaulted ceilings and plant shelves, which were staples in many Windward Homes. They were popular because they give the home a cottage feel, Schulmeyer said, but they are an ‘unnecessary cost.’”

“‘When you have them, you’re just giving away square-footage that could be used in a two-story,’ he said. ‘Also, they waste energy.’”

“Pulte Homes is experimenting with smaller home products as well, said Reed Williams, VP of sales and marketing. In both Harrison Ranch in Parrish and Trillium in Hernando, new homes start at $127,400 for a 1,265-square-foot home and $131,400 for a 1,598-square-foot home. The two communities are 70 percent of the Tampa division’s sales right now, Williams said.”

“For Pulte, he said, the thinking was to target first-time homebuyers who don’t have to sell another home in this problematic real estate market. The only thing holding many of those buyers back, Williams said, was price.”

“‘The response has been fantastic,’ he said. ‘People are a bit skeptical as what they’ll get for this amount of money. But they’re pleasantly surprised. You can get into these homes for about $1,100 a month.’”

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