The Housing Bubble

The LA Daily News reports from California. “With Los Angeles’ foreclosure rate surging by nearly 300 percent, city housing officials said Wednesday that they hope to help stabilize the market soon with millions of dollars in federal funds that would let them buy and resell homes already or likely to become abandoned.”

“Mercedes Marquez, general manager of the Los Angeles Housing Department, said the foreclosure crisis is the most serious she has seen in the housing industry, with 9,100 foreclosures in the city over the past 18 months - primarily in South Los Angeles and the San Fernando Valley - and more than 35,000 homes in default.”

“‘The trend has been pretty stark,’ Marquez said. ‘From the first quarter of 2007 through 2008, there was a 282 percent increase in foreclosures. For the first quarter of 2008, foreclosures were up 40 percent.’”

“‘The first year, it was primarily the subprime loans where we saw the most foreclosures,’ Marquez said. ‘But now we’re beginning to see it hit the middle-class loans.’”

“If there is a bright side, she said, it is that housing prices, so greatly inflated during the boom years, are now coming down and giving more middle-income people access to the housing market.”

“‘The prices were going so high that most people couldn’t afford the homes they had,’ Marquez said.”

The Daily Pilot. “After a month on the market, a new 145-unit condominium development in Costa Mesa has three residents living within its walls. The Pacifica development at the intersection of the 55 Freeway and 19th Street is not alone. In Costa Mesa, developers who had once expressed interest in building for-sale units have been stopped in their tracks and many have shifted their focus to building rentals.”

“‘We haven’t received any new applications for any major new condominium developments in at least six months,’ said Claire Flynn, the city’s principal planner.”

“City Council members have unanimously held it as a top priority to get more people to buy in the city instead of renting, but the effort has been largely unsuccessful and city officials blame the economy.”

“Not long ago, the developer of the largest project that attempted to take advantage of the city’s incentives for building for-sale homes had to approach the council and ask the city to allow it to rent its 151 units.”

“The developer, Nexus, got the approval to build its project in part because it promised to sell the units, but with the housing market in its present state the developer pleaded that it would be impossible to get financing.”

“‘Banks will lend money if [Nexus] does apartments, but if the city said, ‘You can’t build apartments,’ then that project never would have happened,’ said fellow Costa Mesa developer Bryan Coggins.”

“Coggins owns dozens of rental properties in Costa Mesa, mostly on Victoria Street. He said the rents that he is able to charge have stayed stable and that even in some cases gone up while local for-sale properties have depreciated by up to 30%.”

The San Bernadino County Sun. “In the 26 years Ceecee Guillen has been a real estate agent, she says she has never worked in conditions quite like this.”

“‘It has been a real devastating market,’ said the agent in Chino. ‘The real problem is the market is saturated with homes that are on sale, on short sale and foreclosed, and the banks are slow to respond to all the requests that are coming in.’”

“Guillen said she has been waiting for Wells Fargo to call back to accept or reject an offer on a short-sale home listed for $399,000 at 12427 Lewis Ave., Chino, since April. Guillen said if the bank doesn’t call soon, the home will be foreclosed, and then, she said, ‘I would have spent all that time working on a piece of property and not get anything out of it.’”

“This is the first and only offer the agent has received on the home, which was listed in March with an asking price of $550,000. ‘A month later we brought it down and now it’s priced to sell,’ Guillen said.”

The San Francisco Chronicle. “Homeowners are flooding City Hall with so many requests to reduce their property values that the tax assessor said Wednesday his office may not be able to meet the demands.”

“The requests come as the number of home sales and housing prices continue to fall in many San Francisco neighborhoods. The city’s median home sale price fell nearly 12 percent between May 2007 and May 2008, according to the city controller.”

“San Francisco homeowner Emily Flores, said she and her family are strongly considering leaving the city after the Outer Sunset fixer-upper home they bought in 2006 increased $90,000 in assessed value even though home values in the neighborhood dropped.”

“Flores, whose husband provides the sole income for the family of five, said their taxes are set to be $1,500 higher than what they paid in 2006.”

“‘For us, what we’re feeling now is if we’re going to pay almost all our monthly income for housing, we want it to be in a location where property taxes are actually paying for something,’ said Flores, 28. ‘To look outside and see all these potholes and the schools are iffy at best, it’s crazy to stay here. What’s happening to us is not unique. It’s probably what most families with kids are feeling.’”

“Joshua Carnes, VP of operations for the Sacramento-based Prop8.org, said anyone who bought a home in the past few years should expect the assessed value of the property to decrease. The company is named after Proposition 8, the 1978 voter initiative that allowed home values to be reduced when there is a dip in market values.”

“‘If you’re a homeowner in California, you lost value on your property this year,’ Carnes said. ‘Unless you don’t mind overpaying property taxes, there is no reason you should not file for a reduction.’”

The Milpitas Post. “Councilwoman Debbie Giordano suggested last week that City of Milpitas create a new mandatory city law to make homeowners landscape and maintain their front yards. ‘I’m doing this not as beautification, but more or less as neighborhood preservation,’ she told her council colleagues.”

“Councilwoman Althea Polanski said Milpitas’ other visible neighborhood issues included absentee landlords who let homes deteriorate, garbage cans left strewn on city streets, abandoned vehicles in front of homes, and graffiti.”

“During the public hearing, resident Isaac Hughes suggested Giordano’s profession of real estate broker was a possible motivation for her newly suggested ordinance.”

“‘And when you’re a Realtor and you want to get maximum dollar for your sale it’s real frustrating when you’ve got two houses on each side and one across the street that make the property value of your client go down,’ he said. ‘I understand that you’re trying to make a buck.’”

From ABC 7. “According to the Federal Highway Administration, Americans drove 12.2 billion fewer miles in June than last year. That is a difference of five percent, the largest monthly drop-off in driving in recent history.”

“‘The cost of gasoline has an extreme effect on our ability to make ends meet,’ says Laura Britto, a retired bridge toll collector.”

“Britto spends a lot of her time clipping coupons and checking sales. ‘We’ve cut back a lot on the things we used to do as extras. We used to go out to eat once in a while. We don’t do that nearly as often anymore. It’s a lot different. Things have changed,’ says Britto.”

“The owners of Antioch’s Spring Yard Nursery and Florist say sales have really cooled down. Business was off 30 percent for Mother’s Day which is traditionally the biggest time of year, and it has not recovered.”

“‘When people are trying to keep up a house payment and feed their children, they’re not likely to buy gifts for friends and relatives, or even special occasions,’ says Elizabeth Rimbault, a nursery and floral shop owner.”

“And homes like Britto’s are making chili beans a budget stretcher. ‘I don’t know what the answer is. I know that it is not going to come tomorrow,’ said Rimbault. ”

The Ventura County Star. “Janss Marketplace in Thousand Oaks is losing two of its largest stores - Mervyns and Linens ‘n Things - as the struggling economy continues to hammer businesses. Mervyns announced this week that it will be closing 26 of its 176 stores, including the one in Thousand Oaks.”

“Linda Coppen, who works as a cashier at Mervyns in Thousand Oaks, submitted her resignation notice Wednesday. Coppen said she was paid $8.50 an hour with no benefits. She said part-time employees were permitted to work up to 39 hours per week.”

“The employees weren’t caught completely off-guard by the news, having noticed after the bankruptcy announcement that their store began to have curiously long sales, Coppen said.”

“‘It was really like we were practically giving it away,’ she said.”

The Evening Standard. “With Humboldt State University and most area public schools getting ready for classes to begin, back-to-school shopping is well under way. Many local stores depend on this season for a sales boost. But with the struggling economy and higher cost of essentials like food and gasoline, many consumers are scaling back spending.”

“‘I’ve definitely noticed a bit of a lag,’ said Pacific Paper Company Manager Jodie Hanson. ‘The way the economy is going, people are a lot more cautious with what they spend. There’s a little less impulse shopping.’”

“Mary Lou Bertolini, co-owner of the Art Center in Arcata and Eureka, has noticed a similar trend. ‘We still sell art materials and framing, but the tchotchke stuff has fallen off,’ Bertolini said. She cited the housing market and rising food prices as potential issues among consumers, as well as the tight credit market. ‘People are more reluctant to put it on plastic,’ she said.”

“As Bertolini sees it, even when finances are tight, local residents find a way to get by. ‘Humboldt County doesn’t have an economy like the rest of the state,’ she said. ‘We know how to live on less. We’re more resourceful. We can live on pennies if we have to.’”

The Desert Sun. “Eight hundred, strong. That was the number of people Riviera Resort & Spa said turned out Saturday to apply for roughly 200 jobs. Couples in suits. Teens wearing spiffy, polka-dotted heels. Young women carrying babies. Construction workers between jobs.”

“These were among the many who came to the Expo in ‘huge waves,’ said Cheryl Magdaleno, director of Human Resources for the storied resort hotel property. ‘It’s been an incredible day,’ she said. ‘We had 150 people standing in line before the doors opened.’”

“Saturday’s job fair put the total number of applicants for the Riviera at 1,200. And it also emphasized the number of people seeking jobs in the Coachella Valley. On Friday, WinCo Foods in Indio had so many candidates at the door for 210 jobs it froze when the number of résumés collected hit 3,000.”

“Chris Wilson, a skilled construction worker, said he’s been working at a bar at night to make ends meet. ‘It’s been a tough grind,’ he said, as he applied for a janitorial post. ‘My remodeling jobs have been coming in slow for six to seven months.’”

“Darlene Mitchell of Sky Valley said she was laid off from the mortgage industry in January after 25 years.”

“‘I’ve been working at the front desk of a Desert Hot Springs hotel for six months. I’m hopeful the job skills will transfer over, because my mortgage experience sure isn’t of interest to anybody right now,’ Mitchell said.”

La Canada Valley Sun. “Assemblymember Anthony Portantino was joined Friday by Ron Bennett, CEO of School Services of California, at the Pasadena Rose Bowl conference room to discuss the state budget and proposed cuts to education.”

“Bennett spoke to the audience about the proposed cuts in education by the governor and the new proposal by the conference committee. ‘Both sides [are dealing] with one immovable object - the California economy,’ Bennett said.”

“He said the state’s economy could be summed up in one word - housing. ‘Our economy has flattened out,’ Bennett said.”

“Bennett asked the audience how many felt the state was in a recession. Most raised their hands in agreement. Bennett quoted from a friend: ‘He said recession has a lot in common with beer bellies and bald spots. It’s hard to tell when it started, but sooner or later your have irresputable evidence it happened.’”

The Rocky Mountain News reports from Colorado. “One out of every four previously owned homes purchased in the Denver area during the heart of the summer sales season was a foreclosure. And in Adams County, one out of every two homes closed from mid-June to the end of July was a foreclosure sold by a bank or other lender, according to Boulder economist Michael Kone.”

“One thing Kone is noticing is a rise in more expensive homes being lost to lenders. ‘When I looked at this stuff a year back, there was not a lot of pain in the upper-price points,’ Kone said. ‘It is a little concerning seeing this spread of foreclosure into the higher-price bands.’”

“For example, in Arapahoe County, 22.2 percent of the foreclosures were homes priced from $400,000 to $499,999. That doesn’t surprise Sarah Hays of Metro Property Brokers. She is listing about 25 foreclosed homes, priced from $500,000 to $575,000.”

“‘The $575,000 home in Castle Rock sold for about $850,000 two years ago,’ Hays said.”

“Lou Barnes of Boulder West Financial Services, and other experts, said there are so many distressed properties being listed for sale in the Denver area that they are driving down home prices for the entire market.”

“The trend is keeping people who don’t have to sell their homes from putting them on the market.”

“‘I can imagine a husband and wife sitting around the breakfast table and one spouse says, ‘Do you think we should sell our home?’ I can imagine one spouse getting a coffee mug thrown at them,’ Barnes said.”

“Jay Sandstrom of Century 21 Advantage Plus estimated that 35 percent to 40 percent of the approximately 26,000 unsold homes on the market are either bank- owned, in some stage of foreclosure, or otherwise distressed. His general advice to clients is not to sell in today’s market if you don’t need to.”

The Pueblo Chieftain from Colorado. “Permits to build new houses in Pueblo County have plummeted in 2008 due to the housing slowdown and the lack of additional soldiers that had been expected at Fort Carson in Colorado Springs.”

“Using 2002 as a more typical year for home sales, Ted Jones, chief economist for Stewart Title of Colorado, said Pueblo actually has a normal home sales rate when compared to job and unemployment numbers.”

“Many real estate professionals don’t realize that because they’re new and don’t know how the market was before 2002. ‘If you entered the business after 2002, all you had to do was sit back and take orders and make money,’ Jones said. ‘We were fat cats.’”

“The low interest rates enacted by Alan Greenspan when he was chief at the Federal Reserve made real estate into a ‘get-rich-quick scheme,’ Jones said.”

The Arizona Daily Star. “Pulte Homes’ Red Rock Village, the ambitious, 4,000-lot project in Pinal County opened about a year and a half ago. Several families who moved into Red Rock since last fall said they are happy with their decision, even though Pulte has cut home prices - effectively lowering their property values - and commuting has gotten more expensive.”

“‘This house was a really good deal,’ said Jeremy Willistein, 26 who paid $165,000 for a 1,300-square-foot entry-model home last year.”

“Now after price decreases, the starting price is $129,000, and Pulte is working on a new floor plan that would be priced even lower, said Shawn Chlarson, division president for Pulte.”

“During the housing boom, Pinal county saw some of the state’s most rapid increases in development - and now it’s suffering from some of the worst of the crash. ‘There will come a bust in every boom,’ said Bill Bridwell, a Casa Grande real estate broker. ‘Everything just got out of control.’”

“Bridwell said it’s only a matter of time until the slower market catches up to Red Rock, and foreclosures show up there, too. ‘Their houses are worth less today than what they owe on them, the same as everybody else’s,’ Bridwell said.”

“At the current sales pace, it may take up to 10 years before Red Rock is built out, Chlarson said. It will probably be at least two years until development can support a convenience store, he said.”

“‘I can’t even get a coffee and a newspaper in the morning,’ said Michael Tarr, 40, who paid about $200,000 for an 1,800-square-foot home last fall.”

The East Valley Tribune from Arizona. “For the second quarter, the median resale home price in Pinal County was $143,100, down from $156,160 in the first quarter and way down from $220,000 in the fourth quarter of 2005, according to the latest report from Arizona State University.”

“Shawn Stagg, a real estate agent in Mesa…has sold houses in Johnson Ranch for about five years. Banks want to liquidate as soon as possible and are willing to sell the houses strictly at fair market value, he said. That makes it hard for homeowners to sell a property at anything above that, he said.”

“‘It’s pretty dismal now,’ Stagg said. ‘The last time I checked … there was a considerable amount of homes in Johnson Ranch for sale, and I’d say probably 60 percent of those are probably either short sale or bank-owned.’”

“Housing values have plummeted across much of Johnson Ranch, Stagg said.”

“‘People who purchased when the market was really high, they’ve definitely taken a 40 percent hit,’ he said. ‘Most of what’s selling out there now are the single-family, 1,600-square-foot or less homes, and some of them are starting to go for like $90,000.’”

The Arizona Republic. “With more affordable homes entering the rental market, apartment complexes are struggling to sign leases. Between the first quarter of 2007 and the first quarter of 2008, median rents in metro Phoenix’s median rent dropped 9.3 percent to $939, according to apartment-research firm Investment Instruments Corp. It was the steepest decline reported in the 12 largest U.S. metro areas.”

“‘The single-family rentals are impacting our ability to rent apartments because they are directly competitive,’ said Mike Clow, senior VP for property management at Gray Clow Residential, which owns luxury apartment complexes in Phoenix and Tempe.”

“Nicholas Ingle, director of capital markets for Phoenix-based Hendricks and Partners, the nation’s largest apartment-sales and research firm, estimates that nearly 9,000 homes are currently in the rental market, far higher than the usual 1,000-2,000.”

“‘So many of those owners are just desperate to rent them for whatever rent they can get,’ Ingle said. ‘Those homes should be renting for so much more money.’”

“Compounding that rental situation is the influx of condominium conversions back into the rental market. ‘We still have an oversupply of failed and broken condo conversions and most of the condo conversion units are rentals,’ said Pete TeKampe, VP, investments for Marcus& Millichap. ‘North Scottsdale actually has experienced very high vacancy rates because of the oversupply of condo-conversion units.’”

The Kingman Daily Miner from Arizona. “The ‘Kingman secret,’ as coined by Mayor John Salem, is officially out. Kingman was the subject of a feature published in the New York Times Sunday, which highlights the city’s current and future potential as a destination for large Las Vegas-based developers.”

“Both Chris Stevens of Rhodes Homes and Leonard Mardian of the Mardian Group were interviewed for the article. Times reporter Steve Friess writes how both of the developers are unconcerned with the downturn in the housing market, “even as Las Vegas and Phoenix suffer some of the nation’s highest foreclosure rates and steepest home-value declines.”

“In the article, Mardian predicts an additional million people will migrate to the region over the next decade, then asks rhetorically, ‘Where are they going to live?’”

“Mayor Salem elaborated on a few points he was quoted on in the article and sought to clarify Friess characterization of him as a mayor ‘who won election … on a platform of being friendlier to developers. ‘That’s not entirely true,’ Salem said.”

“Salem said while he believes growth is inevitable for Kingman, it is still important for that growth to be planned out accordingly. ‘People are going to come no matter what,’ he said.”

The Las Vegas Sun from Nevada. “Buddy Yates sits at a dining room table awash in paperwork. Within one block of his home, more than a half-dozen residences are bank-owned or in some stage of the foreclosure process, according to Realty Trac, a Web site that maintains a nationwide database of foreclosed homes.”

“Like his neighbors, Yates was hit by a slumping economy and falling real estate values.”

“Last year, his income started to shrink. As it was getting harder for Yates to pay his $300,000 mortgage, the value of his home was dropping, and as a result he couldn’t refinance his loan. Three weeks ago, Yates met his new neighbors, who had just purchased the house next door out of foreclosure for $167,000.”

“His Texas-based lender, EMC…said that Yates was offered a fair deal that would allow him to keep his home. But Yates, who has missed more than one payment, said the repayment plan would put him only further behind.”

“Yates has asked a nonprofit housing counseling group, for assistance. If he doesn’t get a reprieve, he said, he’s expecting a letter this month saying the company will foreclose on his home.”

“‘When they sold you the home, they knew (with the adjustable interest rate), you weren’t going to be able to make the payment,’ Yates said. ‘They don’t have compassion for the family who’s in the home.’”

In Business Las Vegas from Nevada. “The shutdown of Boyd Gaming Corp.’s $4.75 billion Echelon resort will have a far-reaching effect on Southern Nevada’s economic climate - both good and bad - analysts and economists say. ‘It’s like going through the North Atlantic during iceberg season,’ said Keith Schwer, director of UNLV’s Center for Business and Economic Research. ‘We’re just not seeing everything yet.’”

“Boyd Gaming announced Aug. 1 that it was mothballing the 5,000-room Strip resort being built on the 64-acre site formerly occupied by the Stardust. The shutdown pulled 800 construction workers off the job.”

“Schwer acknowledged it was hard to see some of the bad times coming - especially the explosive energy costs. ‘The housing market was getting worse and the big mistake everybody made was not realizing the fallout that would occur, but oil prices were seemingly difficult to predict,’ Schwer said.”

“The postponement of Echelon Resorts is likely to put more strain on the Las Vegas housing market. The housing industry was counting on the creation of thousands of jobs with the opening of new resorts to help lift the market out of its doldrums of the past two years.”

“‘It is evident that the Las Vegas economy is slowly contracting,’ says Josh Seime, manager of Metrostudy’s Las Vegas division. ‘The Las Vegas economy may be on slightly more shaky ground than the nation as the region’s economy does not have a wide diversity of economic drivers.’”

“The increase in sales of existing homes since January is because of sales of bank-owned properties, Seime says. As for the condo market, closings have dropped below new starts in the past two quarters.”

“Vacant lots have remained stable since the beginning of 2007, Seime says. In the 12 months ending in June, they have declined 1.4 percent, for a total of 31,193 lots at the end of June, a 48.3-month supply, he says.”

The Reno Gazette Journal from Nevada. “While the first homeowners have yet to move in, 40 percent of the 370 units in the Montage condominiums have been sold — proof that there’s a niche for luxury housing in downtown Reno, says developer Fernando Leal.”

“At the Montage, housing will range from penthouses priced at up to $2.6 million to one and two-bedroom units and lofts ranging from $320,000 to $975,000, and studios starting at $245,000.”

“In all, he said no more than 500 units are for sale at the Montage as well as other downtown condominiums. An economic consultant hired by the Reno Redevelopment Agency has projected sales of about 200 condos a year in downtown Reno to buyers who are primarily young professionals or empty nesters seeking an escape from suburbia.”

“If that’s so, that means a standing inventory of no more than two years for downtown condos, which Leal said is hardly an overbuilt market.”

“‘I believe in this town. How often do you get to be a Daniel Burnham?’ Leal said, of Burnham, a renowned city planner of Chicago, where Leal built his first projects.”

“Tumbleweeds are popping up on the edges of nearly 200 acres cleared along U.S. 395 in the North Valleys, a sign of the continuing housing slump that has stalled a number of major developments in the Reno-Sparks area.”

“‘We built too fast, too long. Then all of a sudden, the bottom fell out,’ said Tom Gallagher of Summit Engineers said of developments in the Reno-Sparks area.”

“Looking at all construction in Reno over the past 10 years, the slide is even worse. Vern Kloos, a Reno senior planner, said the steep downturn was bound to happen after four years of $1 billion in permits.”

“‘You can’t sustain that. It was just like the dot-com crash. Everything goes in cycles,’ he said. ‘It was crazy. We were hiring consultants to help us. Developers wanting everything done in five minutes. A lot of them overextended and went belly up.’”

“Brian Kaiser, real estate analyst at the Center for Regional Studies at the University of Nevada, Reno, is not convinced the worst is over.”

“‘The rate of descent has certainly changed. We’ve got to be nearing that point,’ he said. ‘But I have to believe we will be scraping along the bottom for another year or more. Sales are still in the toilet. Pricing is still down.’”

“Summer weather typically brings a bustle of activity at residential development sites. But for Sunset Bluffs, the whir of construction machines and the busy hammering of workers seem like a distant memory.”

“Sunset Bluffs is just one of several residential developments that have defaulted in an area hit especially hard by the housing downturn.”

“With property values plummeting and demand for houses cooling after reaching a peak in 2005, Sunset Bluffs, like many developments in the Truckee Meadows, is in financial trouble.”

“At least five businesses that did contracting and subcontracting work for the development have filed more than $1.2 million in liens for unpaid services. The largest was a lien for more than $952,000 filed last year by Jess Arndell Construction. The developer’s failure to honor financial commitments ruined the local construction company, said Mark Simons, attorney for Jess Arndell Construction.”

“‘(Jess Arndell) essentially trusted and believed the developers were going to pay him, and he ended up carrying way too much debt,’ Simons said. ‘Now subcontractors have a half-million dollars worth of claims filed against him, and they’re demanding to be paid. He was in business for 35 years with tons of projects around here … . Now, he can’t afford to do business anymore. It’s been devastating.’”

“‘Our sales are off, and we’ve been making adjustments for two years in anticipation of the downturn,’ said Jim Dickey, credit manager of Western Nevada Supply. ‘It’s certainly the worst market I’ve seen in 26 years.’”

“Even putting a lien on a developer’s land or property to attempt to collect money owed doesn’t guarantee that a subcontractor will get that money. Given the steep declines seen in property values, the developments are no longer worth enough to cover all their associated expenses.”

“‘If the property isn’t worth anything, then the lien isn’t worth anything,’ Dickey said.”

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