The Housing Bubble

The San Francisco Chronicle reports from California. “Despite plummeting values across the nation, 62 percent of homeowners believe their property’s worth has actually climbed or stayed the same during the past year, according to a survey commissioned by Zillow. In reality, the market price on 77 percent of properties has dropped and only about 24 percent have risen or held firm, the company estimates.”

“Malcolm Kaufman, a Realtor with McGuire Real Estate who focuses on San Francisco, said local sellers are generally more informed and realistic about the condition of the market.”

“That said, he sometimes finds it difficult to convince clients to list their homes at slightly below the going rate, which he believes is the best tactic for generating multiple offers in an environment where people are looking for bargains.”

“‘It’s human nature (to say) ‘My home’s worth a million dollars, I want to get a million,’ he said.”

“According to S&P/Case-Shiller…prices fell 22.9 percent in the San Francisco metropolitan area, defined as Alameda, Contra Costa, Marin, San Francisco and San Mateo counties, making it the sixth worst-performing region in the country.”

“Each of the Bay Area’s nine counties saw double-digit median price declines in June, compared with a year earlier, according to DataQuick.”

The Plumas County News. “‘I don’t think there’s a recession in the real estate market, I think there’s a depression,’ John Hodgson, Feather Ridge Estates, told Portola’s City Council at its July 23 meeting.”

“In requesting an extension of the development agreement with Portola for an additional year, Hodgson cited the ‘challenging, even dismal, real estate market we’ve seen in the last year or two, probably more.’”

“Saying ‘there is no market right now,’ Hodgson predicted, ‘It’ll come back, but we’re not sure when …We think there’s one or two more years in this recession.’”

The Union. “Alison Lehman is seeing firsthand the impact of Nevada County’s escalating unemployment rate, which is nearly 50 percent higher than a year ago.”

“Lehman also knows how competitive the job market is in Nevada County. Her department recently advertised for a temporary position that paid a base salary of $36,245. They received 95 applications. In the past, the department would get 10 to 15 applications for such a job, Lehman said.”

“As the director of the county’s Department of Social Services, Lehman has watched a growing number of the newly unemployed file into her office in the past nine months to apply for food stamps and other help.”

“‘What’s stood out to me is that there are more employable individuals who are now looking for assistance,’ she said Tuesday.”

The Manteca Bulletin. “The housing gods must be crazy. Now - in some cases- it is substantially cheaper to buy a home in Manteca than to rent an apartment. Nine homes closed escrow in Manteca last month that cost less per month to buy than renting a two bedroom, two bathroom apartment at Laurel Glenn on Button Avenue that is commanding $925.”

“Realtor Tom Wilson noted that the current Manteca housing markets driven by foreclosures is shaping up more and more as ‘an opportunity of a lifetime’ for first-time buyers as well as investors. Wilson noted, ‘He who hesitates is going to lose out.”

“‘First-time home buyers who are taking baby steps like their mom and dad did are doing quite well in the market,’ Wilson said. ‘I imagine those who bought baby McMansions a few years ago as their first home are wishing they hadn’t.’”

The Californian. “The Marina City Council was poised to breathe new life in the stalled The Dunes at Monterey Bay redevelopment project on Tuesday, with a $106 million reimbursement to the developer. The council meeting went late into the night without a final vote.”

“‘The reality is the project would be dead without additional redevelopment funds,’ said Douglas Yount, director of the Marina Strategic Development Center.”

“Marina Community Partners - developer of The Dunes project - originally expected a 22 percent return on its investment with the original agreement in 2005, Mayor Gary Wilmot told the council. But with the downturn in the housing market the developer expects only a 0.15 percent return on investment - even with nearly $106 million from the redevelopment tax increments.”

“‘This is an extremely risky project,’ Wilmot said. His comment was loudly echoed by the developer who attended the meeting.”

The Compton Bulletin. “Two years after an exclusive negotiation agreement (ENA) was inked, city lawmakers last month finally moved forward with a plan to build 100 single-family homes on the former Alondra landfill site despite the real estate bust.”

“The move did not come without some hesitation on the dais. Councilman Isadore Hall, a real estate executive, said he’s worried the city ‘could lose in the end’ in that there’s no telling when the real estate market will bottom out and begin its slow recovery.”

“The land was appraised in January at roughly $8.5 million. But the value of that land could continue to decrease to a point where the city’s return would be less, Hall said.”

“In 2006, the ambitious project was expected to boost property tax coffers by $70 million annually. Advanced, which will build a gated community of homes on 5,000-square-foot lots along with a pocket park, then planned to price the homes from $600,000 to $700,000.”

“But those prices likely wouldn’t cut it in today’s market, and they might be too far out of reach for too many in the future.”

“And the availability of mortgages has shrunk dramatically, according to DataQuick President John Walsh. Even qualified borrowers are being turned away left and right by lenders.”

“‘The mortgage market turbulence is putting quite a bit of activity on hold,’ he said. ‘Even some very well-qualified households aren’t getting mortgages these days, although this could all change fast if liquidity comes back.’”

The Union Tribune. “A San Diego real estate investment firm has purchased a group of troubled residential development loans for less than 40 cents on the dollar. Ayres Advisors bought 16 loans and one foreclosure property with a face value of $122 million from Central Pacific Bank of Hawaii. The loans were backed by residential land, some condo projects and nearly completed homes, mostly in California.”

“Central Pacific Bank said in a press release that it sold the portfolio for $44.2 million - or about 36 cents on the dollar.”

“In San Diego, Pathfinder Partners, a private equity fund, has purchased loans for distressed condo projects in Florida and hopes to invest $300 million to $400 million in similar deals nationwide over the next 12 months.”

“But until recently, banks have been slow to sell distressed loans at prices low enough to justify the risk, said Lorne Polger, managing director of Pathfinder Partners. That’s starting to change, he said.”

“‘I can tell you what we’ve seen in the last 60 days is a significant sea change in the way many banks are thinking about these things,’ Polger said. ‘We’re seeing pricing much more reflective of the true market value of the asset than we saw six months or 12 months ago.’”

“Banking regulators are pressuring institutions - particularly those overly exposed to residential land development and construction loans - to get realistic about the prospects of payback, said Keith Horne, president of Ayres Advisors. So ‘the smartest banks’ have begun selling troubled loans at steep discounts to help clean up their books.”

The Wall Street Journal. “Burl East is looking for a good deal on a foreclosed house. Make that a good deal on 1,500 foreclosed houses. Mr. East, a managing principal of Silver Portal Capital LLC, a small real-estate investment bank, is raising $150 million to purchase foreclosed houses in and around the firm’s hometown of San Diego.”

“He is scouring lender portfolios and real-estate listing services for houses that he can rent out and then resell in five years. That is when he bets that the local housing market will have recovered.”

“‘It’s like the infantry,’ says Mr. East, who plans to buy his first house later this month. ‘We’ve made a list, and we are going house to house.’”

“Mr. East’s staff includes five sales agents and a former division president at Olson Co., a Southern California home builder. They are targeting properties that were priced at less than $600,000 at the peak of the housing boom and have fallen in value by about 50%. That puts them well below ‘replacement cost,’ or what it would cost to construct an equivalent house.”

“Their strategy takes them away from the shiny new condominium towers in downtown San Diego and into the more-modest suburb of Chula Vista and other nearby California cities where lax lending and big price swings have led to high foreclosure rates.”

“Over the next 12 months, Mr. East plans to purchase as many as 1,500 homes in San Diego and nearby Orange and Los Angeles counties. They plan to rent them to teachers, police officers and health-care providers earning around the median household income in San Diego of $68,000.”

“He is banking that most of his profit will come from price appreciation when he resells the houses starting around 2013. He is betting that houses in coastal Southern California will recover much of their value because the area is a desirable place to live and has a solid employment base anchored by the biotechnology industry and the military.”

“Of course, there is a risk that Mr. East could be striking too early. Ramsey Su, an investor who bought up foreclosed houses in San Diego in the 1980s, says foreclosures have yet to peak and home prices are likely to keep falling, so he is waiting to start buying again.”

The Bakersfield Californian. “State regulators laced scathing descriptions of former Crisp & Cole Real Estate principals into closing arguments Tuesday of a weeklong license hearing.”

“David Crisp ‘lied to the lenders’ on loan applications, said Michael B. Rich, attorney for the California Department of Real Estate, and showed a ‘low moral compass’ by paying staffers in a scam to put properties in their name in order to later funnel sales profits to the company.”

“Carl Cole, meanwhile, was an ‘abject failure’ as supervising broker of Crisp & Cole and its former mortgage brokerage, Tower Lending, Rich said, adding Cole ‘enabled his sales licensee partner’ - Crisp - ‘to run amok.’”

“The state wants real estate licenses of Cole, 61, and Crisp, 28, revoked.”

“Crisp, Cole & Associates, the corporation behind Crisp & Cole Real Estate named in the state complaint, took in more than $488,000 in commissions from the 13 properties referred to in the complaint, Rich said during his closing rebuttal.”

“Tower Lending earned about $120,000 for originating loans on most of the properties named.”

“The state’s 25-page complaint was filed against Crisp & Cole in September, two days before FBI and IRS agents raided 13 Bakersfield locations to seize documents and other evidence related to Crisp & Cole operations. No charges have been filed in the federal case.”

The Salem News reports from Massachusetts. “The first sign of trouble came in December at a lottery to select the owners of some of the new Palmer Cove Condominiums. There were 15 condos for sale, with three-bedrooms going for what appeared a bargain - $189,900. When this project was conceived, an overflow crowd of applicants was expected. Instead, there was just one.”

“‘We knew it was a challenging market, but we didn’t think the market would be that weak,” said Michael Whelan, executive director of the Salem Harbor Community Development Corp. ‘One application was a shocker.’”

“Seven months later, a home-ownership project that held out so much hope for the city’s low-income Point neighborhood, where more than 80 percent of residents are renters, teeters on the edge of foreclosure.”

“The Salem Harbor CDC, a nonprofit agency, has asked the city for permission to abandon the condo project and switch to rentals. That’s the only way out of this financial mess, according to Whelan.”

“‘The real estate market has collapsed out from under us,’ Bill Quinn, the agency’s attorney, told the city’s zoning board.”

“Whelan said it would be disingenuous to keep marketing this as condos and only misleading to the few buyers they might attract. ‘I think we’d be acting in bad faith …’ he said. ‘We have a condo project we know will not succeed.’”

The Boston Globe from Massachusetts. “A Boston-area couple who are in foreclosure, despite their herculean attempts to prevent it, have filed a lawsuit against Washington Mutual. The suit, filed one week ago, indicates the Pestanas would not have gone into foreclosure if they had reached someone at WaMu with authority to resolve their problem.”

“After the couple missed their August 2007 payment, Mark Pestana, a human resources specialist, and Lori Pestana, a business consultant whose work had slowed, still felt they could get current on their loan. One option might have been dipping into retirement savings, they said.”

“‘I feel like we were just sucked in and caught in a vortex that we couldn’t get out of,’ Lori Pestana said about trying to prevent Washington Mutual from foreclosing on a $275,000, fixed-rate mortgage.”

The Boston Herald from Massachusetts. “A California investment firm has agreed to modify 200 Massachusetts homeowners’ subprime mortgages - slashing interest rates and forgiving thousands of dollars in late charges, legal fees and past-due interest.”

“Attorney General Martha Coakley sued Fremont Investment & Loan, a lender notorious for aggressively pushing subprime mortgages during the housing boom, last year, winning an injunction that limited the firm’s right to foreclose on its 2,200 Massachusetts customers.”

“Fremont has since sold off 490 of its Bay State loans - 200 to WMD Capital Markets LLC and 290 to Carrington Mortgage Services.”

“But foreclosure expert John Anderson said the pact does nothing to address the fact that many subprime borrowers are ‘under water.’ ‘For many people, the best thing to do would be to take the $10,000 to $25,000 that WMD is offering and walk away,’ he said.”

The Providence Journal from Rhode Island. “At the end of June, vacant properties in Providence numbered slightly more than 950 - about 300 more than during the last real-estate bust, in the early 1990s recession, according to the city’s director of planning and development, Thomas E. Deller.”

“At last count, 422 of the city’s properties were bank-owned, although the number keeps rising as more people walk away from properties that they are unable or unwilling to pay for.”

“The sidewalk along Ware Court is broken and empty - like the houses. All but one, that is. The two-story cottage at the end of the block is home to the Lewis family. They bought the house in 2001. Now they are, literally, Ware Court’s sole remaining residents. Their neighbors have all lost their homes to foreclosure.”

“‘When we bought it, every house on this street people lived in,’ says Terri Lewis. Now, ‘every house on the street is in foreclosure but mine.’”

“Lewis feels trapped. Her 13-year-old daughter is not allowed to go outside alone. If Terri Lewis’ husband is working late at his job for a security company in Boston, she and her daughter stay locked inside.”

“One day, Lewis was driving her husband to work and saw a man dart out of the house next door. Another time, she caught four men across the street cutting out the copper pipes. She called the police but the thieves took off.”

“‘The police don’t come any more,’ she said. ‘They must think Mrs. Lewis is crazy because I’m forever calling them.’”

“Joy E. Riley, principal broker of Westcott Properties, a real-estate brokerage firm that has built a lucrative business selling bank-owned properties, had received a call earlier in the day from the city’s department of inspection and standards that a reporter had noticed that the door to one of its properties was open.”

“Asked if the properties had any prospective buyers, Riley replied, ‘Yes, there’s interest.’”

“Lewis piped up. ‘You want to put that one on the market?’ she said, pointing to her house.”

The New York Post. “Foreclosures in the city were up 67 percent in July compared to the same month last year. The outer boroughs in particular felt the burn, with the number of auctioned-off homes in Queens surging 81 percent last month compared with July 2007. Staten Island registered a shocking 215 percent increase in the same period.”

“Brooklyn reached a two-year high in foreclosure auctions, while The Bronx recorded a sizable 16 percent increase, according to Propertyshark. Manhattan didn’t emerge unscathed. While only 7.6 percent more homes hit the block last month than in July 2007, there was an alarming 55 percent increase in foreclosure sales from June to July of this year.”

“‘The numbers are pretty dramatic for New York City,’ said Propertyshark CEO Bill Saniford. ‘In Queens, it’s quite scary.’”

“Although foreclosures remain limited mainly to low-income areas, they’re having a domino effect that has driving down prices citywide, said Saniford.”

The Bridgeton News from New Jersey. “Housing foreclosures continue to pile up in Cumberland County. In the past 30 days alone, lenders have initiated new foreclosure proceedings against 51 county homeowners, according to representatives at Affordable Homes of Millville Ecumenical.”

“In addition, more than 900 homeowners in the county, after falling three to four months behind on their mortgage payments, have faced pre-foreclosure since February of last year, the point when many say a burst housing bubble became a national crisis.”

“‘Oh, yes, there was a significant uptick in homes under sheriff’s sales,’ said Chirstine Platania, of the sheriff’s department foreclosure department. ‘First, there was a time when there wasn’t really any increase when everyone was saying we should’ve had an increase. Then all of a sudden, in March 2008, it just spiked.’”

The Carroll County Times from Maryland. “Debbie Rhode listed her house in Westminster for sale in June 2007. After about five months of some interest but no movement, she gave in and found an agent to sell her house. More than six months after the agent had no luck, she took the house off the market in June.”

“‘It’s very discouraging, and I don’t think it’s anything I’m doing wrong,’ Rhode said. ‘It’s very stressful. I’ve lowered the price three times.’”

“Rhode, who already is living in another home, just hopes that eventually the market will pick up again. ‘I’ve done everything I can think of to make the house marketable. This [takes] a toll on your emotions,’ she said. ‘Nobody is buying houses right now; it’s almost like a celebration when you see a sold sign.’”

The Baltimore Sun from Maryland. “With his unconventional condo project in a former Locust Point grain elevator nearly done, developer Patrick Turner unveiled pricing for the 228 upscale units and said he expects as many as 60 buyers to close in the next month.”

“As the housing market tanked, the head of Turner Development Group developed a strategy to forgo pre-sales and wait to set prices until he finished converting the former Archer Daniels Midland Co. plant into housing.”

“The project, near the tip of the Locust Point peninsula, will be completed by mid-September, when the first home buyers should move in. ‘We’ve said we’re not going to set prices until we’re almost done the building and price it according to where the market is,’ he said. ‘People aren’t going to pay more than something is worth. The initial prices are below market.’”

The Virginia Pilot. “Two years ago, Gary Caruana built more than 40 homes in the region. This year, he says, he’ll be lucky to get four or five built. ‘It takes appointment after appointment after appointment to get them under contract,’ said Caruana, head of Virginia Beach-based Caruana Homes Inc. and GTC Homes.”

“‘It’s not a line of business that we’re coveting in this environment,’ said Ben Berry, CEO of Gateway Bank & Trust Co., whose parent company is based in Virginia Beach.”

“Some builders say now that they overpaid for properties that developers made available. For example, Caruana said he bought 10 lots in the Great Bridge area of Chesapeake in late 2005 for $315,000 apiece despite misgivings about the cost. Several are still vacant, he said, and their values have plunged.”

“William Brice, president of WATAB Construction Corp. in Norfolk, recalled having the same problem. Some developers, he said, required that builders buy a minimum number of lots, which required taking on additional debt.”

“‘They had us over a barrel, but you had to take it,’ Brice said.”

The Washington Post. “Jane Hwang spent $120,000 and devoted five years waiting for her perfect custom home. Then in one brief phone call, she learned she might lose it all. The builder, Seville Homes, couldn’t pay its bills, and its bank was seizing Hwang’s nearly completed house.”

“Scared of losing her investment, Hwang pounced into action. She went to the auction on the Fairfax County courthouse steps and outbid a bank for the house. ‘For five years I have been fixated on this place,’ said Hwang, a real estate agent. ‘I planned my retirement, I put all my life in there. I had to grab that house.’”

“Despite buying the Annandale home at a foreclosure auction for $700,000, Hwang said losing her deposit, as well as paying to complete construction and resolve lingering zoning concerns, means that the home will cost her more than $50,000 over the original $800,000 price.”

“Hwang said she saw Stephen Korfonta, Seville’s owner, nearby during the auction, but they did not speak. ‘I was so angry,’ she said.”

“Seville Homes, a small Virginia builder, collected hundreds of thousands in deposits in recent years for homes in Northern Virginia that it never delivered. There are foreclosure filings on 19 Seville properties, including a Vienna house assessed at $1.2 million and an Annandale house assessed at $1 million. A $2.2 million five-bedroom home owned by Korfonta personally has also been in the foreclosure process.”

“It is common for some small builders to use a buyer’s deposit to help fund operations instead of putting it in escrow, said Kenneth Wenhold, director of the mid-Atlantic region for MetroStudy. ‘There are a lot of builders having issues, especially smaller builders who are wrestling with cash flow and still trying to build houses.’”

“Some Seville customers whose homes have not been delivered are still hoping for their money back. Jeewon Kim heard the news about the foreclosure of her five-bedroom house in Annandale from a friend. Kim immediately called Korfonta, who she said agreed to return her $50,000 deposit. She did not receive the first payment, which was due in May.”

“But another is due in September. ‘We have to find a way to make him pay us the money back,’ she said.”

The Free Lance Star from Virginia. “Here is what a prospective buyer would encounter while touring one foreclosed home in Spotsylvania County: A tree lay on the roof and blocked the front entrance. It was unclear how long the tree, which apparently was hit by lightning, had been on the vacant home.”

“There’s mold in the refrigerator and water damage in the basement. It’s difficult to take the smell for long. Realtors say that house, which is under contract, is in worse shape than most foreclosures. But inspectors say it’s not uncommon to find significant damage, and many require thousands of dollars of repairs before they’re move-in ready.”

“‘It’s mind-boggling,’ said Joel Webber, who has run the Stafford County-based Old Dominion Home Inspection Services since 1998. ‘It’s sad to see it.’”

“Webber said the vast majority of his inspections these days are on homes in foreclosure. Many area residents have lost the pricey homes purchased during the peak of the housing boom a couple of years ago.”

“Webber questioned why the banks wouldn’t take better care of the homes if they’re trying to sell them. Suzy Stone, a Realtor in Spotsylvania, said some banks do fix up the homes. But she said most buyers of foreclosures know there will be some problems. Many of the buyers are investors. They buy them on the cheap, sink in some money for repairs and flip them.”

“Stone said that frequently people take their appliances out of the home before they’re forced to leave. They’ll also often leave trash behind and neglect the lawn, as they no longer care about the home. Old food is sometimes left in refrigerators.”

“‘I opened the front door and couldn’t go in, it was so bad,’ Stone recalls of one foreclosure home she was showing.”

“The new owners will frequently have to repaint the home and put in new carpeting and flooring, Stone said. But that’s sometimes worth it considering how little some of the homes are selling for, Stone said. The aforementioned house in Spotsylvania was listed for less than $120,000, about a 50 percent discount from what it might have sold for a couple of years back.”

“‘It’s a whole different market out there,’ Webber said.”

Please visit the HBB Forum. Post off-topic ideas, links and Craigslist finds here.