The Housing Bubble

The Palo Alto Daily News reports from California. “In a dubious distinction amid the nationwide foreclosure meltdown, East Palo Alto has the highest number of properties in default and in bank ownership per capita than any other city in San Mateo County, according to a report. Three other cities in the county - Daly City, South San Francisco and Redwood City - also have high foreclosure rates.”

“East Palo Alto council member and real estate agent David Woods said that in the most extreme cases this year, some homes lost almost 60 percent of their value before foreclosure.”

“He said a small, two-bedroom house on the 2300 block of Oakwood Drive was appraised at around $600,000 just 18 months ago. In February, Woods said it went to auction for $189,000 and didn’t sell.”

“On the 1100 block of Sage Street, a home that was appraised 18 months ago at about $635,000 went to auction a few months ago and also didn’t sell. The lender is now selling it on the market for $289,000, Woods said.”

“‘These are the ones that are sticking in my head, because they’re so extreme,’ Woods said. ‘These lenders are just cutting their losses.’”

The Novato Advance. “After a precipitous decline spurred by the highest foreclosure rates in Marin, there are signs that the value of Novato’s real estate may be nearing stabilization. ‘What’s happened is that there were a lot of short sales. There are so many real-estate-owned properties, it’s a buyer’s market,’ said Patti Cohn of Frank Howard Allen.”

“‘The median price of a home in June 2007 was $497,000,’ said Cohn. ‘In June 2008 it was $319,000. This might be a bottom.’”

“Stringent mortgage requirements are a potential brake against the volume of activity needed to raise the price of housing, said Bill Stewart, co-owner of Provident Real Estate in Novato. ‘It’s very difficult right now, all the loans seem to be challenging, and the basic problem is there’s no money out there,’ he said.”

“That means homeowners looking to sell are either stuck waiting out the market, or faced with taking a huge cut in the return on their property. ‘It’s very difficult,’ said Stewart. ‘We pass on numerous listing opportunities because we won’t tell sellers only what they want to hear.’”

“‘A lot of real estate sales and short sales are coming to fruition,’ said Denise Athas of Athas and Associates. ‘They’re getting a lot of offers because they’re priced really well, and that’s bidding up some prices in those price ranges. Right now we’re getting through the inventory of foreclosure and short sale properties, and once we burn through that, we’ll see slow appreciation every year.’”

The Marin Independent Journal. “Another 14 Marin County homes were foreclosed in the past month as they were taken over by banks, a Northern California real estate data firm reported. Ten properties in Novato and four in San Rafael were the latest Marin foreclosures, said Susan Gorham of Lodi-based California Resource.”

“‘A lot of these properties are going back to the lender because a lot were sold at the top of the market,’ she said. Properties ‘might be worth less than the unpaid debt.’”

“Marin posted 284 notices of default, the first step in foreclosure proceedings, during the second quarter this year, up 140 percent from 118 default notices during the period last year. Statewide, default notices doubled.”

From ABC 7. “With the housing market suffering, one business is booming, self-storage. In some communities, just finding a storage unit is nearly impossible.”

“Chuck Jeffries spends his days locking up and checking the facilities as manager of Branham Self Storage in San Jose. He doesn’t have to go out in search of business, it’s coming to him. The facility is nearly full and he attributes the spike in occupancy to the drop in the housing market.”

“‘They have to move out and they’re losing their places and they have to put their stuff somewhere, somewhere fast,’ said Jeffries.”

The Merced Sun Star. “A record number of property owners in the city of Merced were slapped with financial penalties for failing to maintain their property last year — another example of the toll foreclosures and vacant houses are taking in Merced.”

“The city handed out warnings to clean up overgrown yards and other nuisances at 3,758 lots last year. That’s nearly double the number warned in 2006, according to a recently released city report.”

“The list of properties where the city hired contractors to clean hazards reads like a catalog of factors contributing to blight in Merced. Foreclosures, out-of-town owners and developers who’ve abandoned subdivisions all make appearances.”

“One cul-de-sac in southeast Merced, Polaris Drive, is home to three blighted properties that were cleaned up by city-hired contractors. One of the houses now appears occupied, with a clipped green yard. Two others — both brand-new, like the rest of the block — stand empty.”

“One looks as if it could use another round of nuisance abatement. The city says the owner lives in the Contra Costa County town of Danville. The city billed them $427 to clean up the property. The owner never paid. Now there’s a lien on the property.”

“On Wednesday, Tommy Gutierrez was outside the house next door performing some pest control work. He said in the three years he’s been working on Polaris Drive, he’s never seen any signs of life at 2659, the property the city liened.”

“‘It’s too bad,’ he said. ‘It’s a beautiful place. It could be a nice starter home for somebody.’”

The Fresno Bee. “Sales of existing homes climbed in Fresno and Clovis in July for the sixth consecutive month. But analysts were quick to note the market is still fragile because more than half of the sales were bank-owned properties and that sales typically increase in spring and summer anyway.”

“At least 518 existing single-family houses were sold in Fresno and Clovis in July, but about 51% were bank-owned, said Don Scordino, president of the Fresno Association of Realtors.”

“Andrew LePage, an analyst for DataQuick, said increasing sales is a positive trend, but that a strong recovery won’t occur until the foreclosures begin to fade, and the inventory of unsold homes shrinks.”

“‘The sales bottom is the first bottom you’ll see, and then there will be a price bottom. We don’t see that,’ he said.”

The Bakersfield Californian. “A snapshot of Bakersfield’s home sales in July shows a jump in volume fueled by bank-owned properties and declining prices, according to a report from local appraiser Gary Crabtree.”

“July’s 484 sales sagged slightly from June’s 546, but were up more than 52 percent from the previous year’s tally of 317 sales. Distressed sales - foreclosed homes and short sales - accounted for almost 70 percent of July’s sales. A year ago, distressed sales accounted for 14 percent of the market.”

“Median price, at $190,000, marked a return to July 2004 level. In dollars, Bakersfield’s average home declined $10,000 from June’s value and $101,000 from July 2007 figures.”

“Foreclosures in the Bakersfield area have cost lenders more than $200 million since September, Crabtree estimates.”

The Daily Pilot. “Newport Beach-based MKA Capital Group Advisors LLC has been running a Ponzi scheme on its investors, according to a Newport Beach couple suing the company.”

“According to the lawsuit, filed in Orange County Superior Court July 28, MKA Capital Group, a real estate investment-management firm worth between $400 million and $500 million, has been using new investors’ money to cover losses suffered by the group’s ‘Opportunity Fund’ investors. The Opportunity Fund is a fund created to make loans to real estate developers in hopes of turning a profit.”

“When Newport Beach couple John and Cynthia Gates invested $3 million into the Opportunity Fund in July 2007 they say they were promised a 12% annual profit on that investment and that there was virtually no risk of losing money, their attorney Gary Steinberg said. Instead, for whatever reason, their money was used to cover losses earlier investors had suffered, the lawsuit claims.”

“‘No one in their right mind would make such a guarantee,’ said Dan White, general counsel for MKA Capital Group.”

The Los Angeles Wave. “There is no shortage of gloom in the Southern California housing market, as one key indicator recently saw home values in Los Angeles fall 24.5 percent from a year ago. But those spiraling fortunes are helping Barrington Malcolm build a dynasty.”

“Malcolm runs Dynasty Dynamics, Inc., a multimillion dollar, privately owned property company that keeps a low profile, but has been a major player in the high-stakes California real estate market for more than 20 years.”

“Malcolm is quickly becoming the California banker’s best friend, acquiring properties at significant discounts and remodeling them for sale at a profit.”

“For instance, in June, Malcolm bought a house in Leimert Park for $249,000, and within four weeks the remodeled property was listed for $439,000. Right now his company is in negotiations to buy four properties at the Cove Condominiums in Marina Del Rey; the high-rise luxury apartments, which people were snapping up for a $1 million-plus, are now going for half that.”

“‘You see recession,’ said Malcolm, ‘I see opportunity.’”

The New York Times. “The first season of ‘Million Dollar Listing,’ a reality series on Bravo that follows real estate agents in Hollywood and Malibu, Calif., was broadcast two years ago, and already feels like material from a time capsule.”

“The show captured a giddy period in which a cash-strapped seller could list a shabby 1960s contemporary in the Hollywood Hills for close to $1.3 million, get an offer above asking price, and still debate whether to make the deal.”

“The current housing market, of course, is much gloomier, especially in Los Angeles. Considering how emotionally fraught the subject of residential real estate has become, most fans of ‘Million Dollar Listing’ probably figured the show, which was off the air last year, had gone the way of the subprime loan.”

“But this week a second season made its debut, and the channel has bravely stuck with the name and the format instead of steering the show in a more topical direction, like ‘Million Dollar Foreclosure.’”

“Still, one wonders how a series that owed its popularity in large part to the go-go real estate market, and the national housing obsession that that market created, will be affected by the mortgage crisis.”

“‘Obviously, the market is different today,’ said Andy Cohen, the senior VP for programming and production at Bravo. ‘But the cost of real estate in Malibu is still ridiculous. It’s like, O.K., this house isn’t selling for $17 million, it’s been reduced to $14 million.’”

“Beverly Hills or not, market realities are evident in the first episode. One seller, an interior designer looking to unload his renovated condo, wants to party like it’s 2005, and Chad Rogers must persuade him to be realistic about the asking price.”

“The seller pouts, then pulls the listing. According to the lone holdover from Season 1, Madison Hildebrand, unrealistic sellers are common these days, as are price reductions and slow turnarounds on high-end homes, even in Malibu. ‘Now the average time is eight months,’ he said with a sigh the other day.”

“Randy Barbato, the show’s executive producer, acknowledged, the move to the city’s wealthiest enclaves does reflect the way property lust has evolved. Back when nearly anyone could get a loan, he said, ‘it used to be that you could almost touch the shingles’ on houses shown on programs like his. Now, the attraction is more about fantasy. ‘Some properties should be there to long for, and not to have,’ he added.”

The Palm Beach Post reports from Florida. “Here in the eye of the nation’s financial storm, the Fed sits motionless, watching as inflation rises at the quickest rate in 17 years and home prices fall faster than any time since the Great Depression. Economists say this rare mix of consumer inflation and housing deflation has everyone in a bind. ‘The problem is that, for the first time since the Great Depression, the banking, housing and consumer sectors are all caught up in an inescapable Catch-22 trap,’ Bernard Baumohl, managing director of The Economic Outlook Group LLC, wrote in his analysis of the Fed’s position.”

“‘The prime collateral of banks consists of real estate, which keeps eroding in value each day,’ he wrote. “This is the vicious downward spiral that has ensnared the economy for more than a year.’”

“In areas with plunging real estate prices, such as South Florida, equity loans are drying up. Lenders originated only $128.3 million in home equity loans in Palm Beach County that in May, down nearly 60 percent from the same month last year, according to DataQuick.”

“‘The value of the house that I am living in has fallen,’ said Christel Silver, a Realtor working in Florida’s hard-hit Boca Raton-Delray Beach area. ‘There is no equity left, but three years ago, I could have gotten plenty of money’ in an equity loan.”

“Silver said she wishes the Fed would cut rates and lenders would relax loan standards to boost home sales. But she is not optimistic for the short term. No matter what the Fed does in September, home prices will remain depressed for a while because ‘we still have so much product on the market,’ she said.”

The Miami Herald. “The bursting of the Florida real-estate bubble now has a price tag: $153 billion. That’s the loss in market value of all Florida properties, from houses to businesses, between 2007 and 2008.”

“‘You’re seeing more of what you would think of as ‘fire sales,’ just really rock-bottom prices to move property,’ said the Legislature’s chief economist, Amy Baker. ‘It’s not a terrible thing. You want to see that.’”

“‘It seems like Miami-Dade is picking up declining [property-value] speed . . . or falling off a cliff,’ Senate tax analyst Ellen Fournier said.”

“The construction industry lost about 80,000 jobs in a year, making Florida the No. 1 job-loss state in the nation. ‘We’re basically an unhealthy patient right now,’ Robert Parrish, president of the Florida Home Builders Association, told Gov. Charlie Crist in a Tuesday round-table discussion with business leaders.”

“‘We’re not getting any better,’ Parrish continued. ‘We could be getting sicker. We’re looking for the doctor.’”

“Crist responded with a nervous laugh: ‘Well, I’m not a doctor.’”

From Miami Today. “In an unusual deal, The Related Group partnered with private equity firm Lubert-Adler Partners in a bulk purchase of 120 condo units at 50 Biscayne, a project Related co-developed. The price of $30.3 million, or an average price of $250,000-$300,000 for units that have been trading at about $400,000, represents a sharp discount, said Peter Zalewski, principal of (a) consulting company.”

“Mr. Zalewski said shortly after selling off 26 units in bulk to 50 Biscayne Suites LLC in May, the development partners paid off the construction loan to LaSalle National Bank. ‘That meant they no longer had to sell at whatever price the bank says is necessary,’ he said.”

“The partnership between Related and Lupert Adler is unusual, Mr. Zalewski said, and the implication is that Related ‘is throwing in the discount they should have made with the idea that ultimately they will be able to realize it when the market changes.’”

“‘The bankruptcy of WCI Communities earlier this week has had a psychological effect on fund buyers,’” he said. ‘Last Friday, regulators shut down First Priority Bank in Bradenton, which indicates that discounting of construction loans is going to begin at Florida banks. It says to funds that now is the time to deal, because the day of the banks trying to work things out with the developer is over. Banks need to start writing off loans. Another sign is that 80% of the 23,000 new condo units in downtown, Brickell and Biscayne Boulevard have been delivered.’”

“Lucas Lechuga, a Realtor with Miami Condo Investments, said it’s hard to say if and when the vulture fund’s action will affect prices.”

“‘If the buyer puts them back on the market at a discount it will affect the price and make it very difficult for people trying to sell individual units,’ he said.”

“In an interview last year, attorney Robert Barron, a shareholder at Berger Singerman, said creation of vulture funds is a logical outcome of the credit crunch, but the funds could bring unforeseen repercussions all around.”

“‘One problem is that whatever the discounted units sell at will become the comparable sales price for the project,’ he said, ‘and that will indirectly affect other buyers who have to get financing. So unless they are cash buyers, the developer is messing up their ability to close.’”

“In a report being released Thursday, the Census Bureau showed Broward’s population fell by about 13,100 between 2006 and 2007, the largest loss statewide and Broward’s first drop in population since 2000. Four other Florida counties also lost population for the first time since 2000.”

“‘This is clearly a reaction to the housing crisis,’ said William Frey, a demographer at the Brookings Institution in Washington, D.C.”

“One retired couple put their Sunrise home on the market two years ago. They were eager for a radical change in scenery and lifestyle. In June, the longtime South Floridians settled in Ocala. ‘We decided to come up and see where everybody was going. When we got up here in Ocala it was absolutely beautiful,’ said William Sorrells, a retired Broward County employee. ‘The economy is certainly a lot — what should I say? How do I say it nicely? — it’s not as nearly expensive as it is down there.’”

“One single mother who lived in East Kendall left in October. The reason: ‘Coming too close to foreclosure on my house too many times,’ said Maud Henrys, from Haiti. ‘It all just became too unaffordable.’”

“These days, Henrys is working as a nursery photographer in Cary, N.C., with four of her five children. She said she knows six other families who are recent transplants from South Florida, including her best friend.”

“‘We really love it,’ Henrys said. ‘I’ve saved thousands of dollars. Car insurance is 50 percent less. It was a no-brainer for me.’”

The News Press. “Ray Kest, professor in the MBA program at Hodges University, noticed more young people leaving in the last year, including his two sons. During the housing heyday in 2005, they followed him from chilly Ohio to sunny Lee beaches to make money. His 27-year-old was a carpenter and his other son, now 30, was a mortgage broker. As the local construction economy soured, they returned north in spring 2007.”

“‘For a short period, they made a lot of money. Then work dried up for them,’ Kest said, adding with a laugh. ‘And I said, ‘Well you’re not going to live with me.’”

The Naples News. “The Lee County School District is far below its student enrollment estimates for the upcoming school year, which starts Aug. 18. If the enrollment doesn’t increase, the district will post what may be its first-ever year-to-year decline in students.”

“As funding from the state is tied to the district’s enrollment, if 2,600 students leave mid-year — as they did last year - the district may have to give back some money to the state. ‘It’s a very desperate time out there,’ Superintendent James Browder said last week.”

“At the district’s Fort Myers student assignment office, Smith’s prediction of 1,600 procrastinators was exhibiting itself. There were at least two dozen waiting for placement in a school late Monday afternoon.”

“Jeanny Nakaya was one of those waiting. She and her three daughters are new arrivals. Despite the growing unemployment rate in the county, Nakaya said the family has come here for work. She said her husband, a pharmaceutical sales representative, has been relocated to Southwest Florida.”

“She said the family, which came from Shreveport, La., is looking to take advantage of the housing market. ‘For me to buy is awesome, but if I had to sell. Well, it’d be bad,’ she said.”

The Bradenton Herald. “The U.S. Census Bureau reported Wednesday that Manatee County’s population grew by about 3,000 people in 2007 over the previous year.”

“Nancy Engel, executive director of the Manatee County Economic Development Council, warned that the county might not be as lucky this year because a lot of construction workers are leaving the area because of the housing industry’s decline.”

“‘Looking at the 2006 to 2007 numbers, I don’t think anyone expected there to be a decrease in the population. But this year, we are looking at the rate of growth slowing down considerably,’ she said. ‘I think we are going to see a deeper hit from 2007 to 2008.’”

“Scott Cody, a demographer with the University of Florida’s Bureau of Economic and Business Research, speculated that some of the Census Bureau’s population estimates may have been slightly inflated in prior years.”

“‘With the previous estimates, we are not quite sure how many households were vacant condos, or just speculators buying property, and there wasn’t really a permanent resident living there,’ he said. ‘So some of the slowdown in the growth might have been houses that were always empty that now have the electricity cut off.’”

“‘We are working on our 2008 estimates and we can already see the drop-off in the growth in Florida,” he said. “Most of Florida’s growth is migration. And we have a lot of people who had come in to work in the construction industry and as those jobs dry up, they leave.’”

The Herald Tribune. “More than 300 people had already turned in applications Tuesday morning when Glenn Monroe dropped his in the box outside the future site of the new Janie Poe Housing Development.”

“‘A couple of guys on my street are out of work,’ said Monroe, who lives a few blocks from the site where crews demolished old public housing apartments in May to make room for 86 new mixed-income units. ‘I’m not the only one out here. This community is hurting real bad.’”

From Building Online. “Building Materials Holding Corporation, a leading provider of building materials and construction services to professional residential builders and contractors, announced it will discontinue operations at its wholly-owned subsidiary SelectBuild Florida over the next four months.”

“‘In light of the challenging homebuilding environment, we recognize the need to realign our business across the country to reflect local conditions,’ said Stanley M. Wilson, President and Chief Operating Officer. ‘The Florida market has weakened considerably and we anticipate it will be some time before improvement is seen. Housing starts in the Florida market have dropped from a peak of 265,000 in 2005 to only 99,000 in 2007 and an estimated 61,000 in 2008.’”

The Capital News Service. “A new state study says the value of property dropped six percent across Florida in the last year. Right now, there is a two year supply of existing homes for sale. Until that market is gone, new home construction will be lackluster.”

“Quentin Allen was a subcontractor, constructing high end homes until the bottom fell out of the market. He says it happened in the blink of an eye.”

“‘I had anywhere between 6 to 8 absolutely lined up and they went away all at once. Completely,’ Allen said.”

The New York Times. “A cheerful sign outside the glistening offices of Bank United beckons consumers to tap into ‘Mortgage-ade.’ Another promises a ‘59 Minute Mortgage.’ But easy money, it turns out, has created enormous problems at Bank United, Florida’s biggest regional bank.”

“By aggressively peddling a popular type of high-interest loan to risky borrowers, the bank tripled its profits in 2006 as real estate on Florida’s Gold Coast peaked, only to lose nearly $100 million in late 2007 and early 2008 as the market cratered. Now, its CEO, Alfred R. Camner, is scrambling to raise $400 million in capital, an amount nearly eight times the bank’s shriveled value on the stock market.”

“In an interview, Mr. Camner, who is also the bank’s controlling shareholder, testily defended the bank’s strategy. ‘We did it for over 10 years,’ he said, referring to the bank’s use of a risky but highly attractive product known as an option adjustable-rate mortgage.”

“‘For a very long time, it was an excellent performing package.’ he said. ‘It gave the borrower a chance to manage his money. If they qualified, it was an excellent loan.’”

“The strategy proved lucrative: Bank United’s assets more than doubled to $15 billion from $7.1 billion in 2003, while its total loans rose to $12.5 billion from $3.9 billion. By last October, the end of the bank’s fiscal year, Mr. Camner had allowed option adjustable-rate mortgages to dwarf overall mortgages three to one.”

“Bank United found itself on a particularly slippery slope as its newfound base of risky regional borrowers eroded. From mid-2006 to early 2008, the percentage of its assets designated as nonperforming soared more than fivefold to 4.75 percent.”

“‘The bank clearly did not understand the risks,’ said Gerard Cassidy, a banking analyst at RBC Capital Markets. ‘We believed that they pursued that business because it drove revenue and earnings growth.’”

“Indeed, the bank kept expanding. By the end of March, 48 percent of its $9.8 billion residential loan portfolio was outside Florida. ‘By opening up offices across the country,’ its president Ramiro Ortiz said in an interview, ‘we were diversifying risk.’ But, he added, ‘we never anticipated a national downturn.’”

From TC Palm. “Jubilant environmentalists cheered Brevard County commissioners’ unanimous approval Tuesday of land purchases that experts said would secure a critical conservation corridor between the St. Johns River and Merritt Island National Wildlife Refuge.”

“The commission approved three deals allowing the voter-approved Environmentally Endangered Lands program to acquire more than 1,500 acres in Scottsmoor for $21.1 million — land the program had pursued since the early 1990s.”

“During two hours of discussion, speakers argued that the land bisected by Interstate 95 linked a swath of conservation areas that had statewide importance for bio-diversity and water quality. But as with other recent conservation purchases, the county was accused of paying too high a price.”

“The total cost fell by $3 million since November, when commissioners — at the urging of Clerk of the Court Scott Ellis — requested updated appraisals to capture falling real estate values. Ellis argued Tuesday that commissioners could take better advantage of the market ‘free fall’ if they were more patient.

“‘Every single purchase that has been delayed has saved millions of dollars,’ Ellis said. ‘There is no danger of development.’”

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