The Housing Bubble

The Press Democrat reports from California. “Sonoma County’s summer home sales surge continued in July as buyers snapped up discounted properties shed by lenders and financially strapped homeowners. The countywide median price fell to $399,000 in July, down 30.6 from a year ago. Prices were last under $400,000 in March 2003. ‘People are out looking for bargains. I think you’re going to see continued softening of prices into next year,’ said Leslie Appleton-Young, chief economist for the California Association of Realtors.”

The Sacramento Bee. “Sacramento-area home sales surged past last year’s levels for a fourth straight month in July as 4,126 buyers embraced falling prices and deals on foreclosed homes. It’s not surprising, experts said Monday. Prices have fallen steeply, 30 percent or more in the past year.”

“Median sales prices of existing and new homes combined in Sacramento County…have now fallen 45.7 percent from their August 2005 highs.”

“Banks in July continued their reign as the capital region’s top sellers. Their foreclosed properties accounted for 70 percent of closings in Sacramento County alone, according to the Sacramento Association of Realtors. ‘Banks have been extremely aggressive in their pricing,’ said Bob Bronswick, president of Coldwell Banker Residential Brokerage’s Sacramento-Tahoe region.”

The San Francisco Chronicle. “Bay Area home prices plunged to a 53-month low in July as a brisk business in foreclosed properties depressed prices and buoyed sales volume. The median price for both new and resale homes and condos stood at $470,000, down 29.3 percent from a year ago, according to MDA DataQuick. The last time the median was lower was in March 2005, when it was $469,500. For resale homes, the median was $485,000, a 34.3 percent drop from last July.”

“A full 33 percent of all resale homes were foreclosed properties. In July 2007, just 4.2 percent of existing home sales were foreclosed properties. ‘So much of today’s market is driven by distress,’ said John Walsh, MDA DataQuick president. ‘Unless interpreted in that context, the stats give a rather distorted view of the overall market. We know one-third of the Bay Area’s resales in July were homes fresh off foreclosure. Who knows how many more involved a desperate seller and a lender who accepted a short sale?’”

Bay Area Newsgroup. “As the mortgage meltdown forces more homes into foreclosure in the Bay Area, some of these properties are being picked up by investors who are putting them back into the rental market.”

“The upshot of this activity is that more single-family houses are starting to show up as rentals in parts of the East Bay - such as Antioch - and in San Joaquin County. In addition, some condo for-sale properties in downtown Oakland - such as the Broadway Grand - are being rented out as apartments because developers are having a hard time finding buyers in today’s tough housing market.”

“Joy Diricco, a Realtor in the Antioch office of Prudential California Realty, has 20 listings for various short-sale properties in Antioch and Brentwood. Such sales help people who are having problems paying their mortgage avoid going into foreclosure.”

“Diricco attempts to find rental houses for her short-sale clients to move into after their properties are sold.”

“‘I’ve been very lucky getting my clients into rentals. It has not been easy,’ she said. ‘All of these short-sellers - when they sell - they have been displaced from their homes. Now they need a place to live, so they have increased that renters market.’”

The Ventura County Star. “The median price paid for a Southern California home was $348,000 last month, down 2 percent from $355,000 in June and 36 percent from $505,000 a year ago. Foreclosed properties accounted for 43.6 percent of the existing homes sold in the six-county region last month.”

“Though…Mark Schniepp, executive director of the California Economic Forecast Project in Goleta…does not believe prices will drop much more, he predicts more year-over-year price declines for as long as foreclosures continue to rise.”

“‘Much of the declines we’re seeing right now is influenced heavily by distressed sales,’ he said. ‘Those are the things that are beating down prices.’”

“About 36 percent of the county’s existing homes and condominiums sold in July had been foreclosed on at some point in the past year, compared to 7.7 percent a year ago.”

The San Gabriel Valley Tribune. “July’s median price for a Southland home was $348,000, down 2 percent from $355,000 in June and down 31.1 percent from $505,000 for July 2007. Broken out separately, Los Angeles County home sales fell 3.2 percent in July compared with a year ago, while prices dropped 26.9 percent.”

“The county’s median price last month was $400,000, down from $547,500 during the same period a year earlier.”

“Marty Rodriguez, owner of Century 21 Marty Rodriguez in Glendora, said foreclosure properties make up about 30 percent of the buying and selling activity at her realty office.”

“‘That includes short sales,’ she said. ‘With short sales, you have about a 70 percent chance of the deal going through. The banks are so overwhelmed right now. They don’t have enough people to handle this.’”

“Many foreclosed properties are in need of work, but for those willing to take on the challenge, the savings can be substantial, according to Rodriguez. ‘One home sold for $100,000 to $150,000 less than what we’re selling them for now,’ she said. ‘In some cases you can get 25 to 30 percent off in pricing.’”

The LA Daily News. “Buyers in July committed to an average mortgage payment of $1,632, compared with $1,671 the previous month, and $2,447 a year earlier. Adjusted for inflation, the current payment is at its lowest level in five years. The payment is also 24.2 percent lower than spring of 1989, the peak of the prior real estate cycle.”

“Jack Kyser, chief economist at the Los Angeles County Economic Development Corp., said the residential real estate market remains cause for concern. ‘I think you have a ways to go before you can say things are starting to turn. We just don’t know how much trash is out there in the market,’ he said.”

The Union Tribune. “More San Diego County homes were sold last month than at any time in more than a year, MDA DataQuick reported yesterday. The overall median price was $364,000, down $6,000 from June and off $125,000 from July 2007. The 25.6 percent year-over-year decline was the highest for any month in the 20 years of DataQuick record-keeping.”

“Experts…pointed to the record 40.8 percent of the sales involving homes foreclosed in the previous 12 months and the fact that new foreclosures are outnumbering the sales of foreclosed properties. July’s 1,259 foreclosure sales compared to June’s 1,838 foreclosures.”

“Peter Dennehy, senior VP of Sullivan Group Real Estate Advisors of San Diego, said, ‘The percentage of foreclosures and the mix of housing needs to be quite a bit smaller,’ closer to the traditional level of 1 percent to 3 percent of sales.”

“Prices will stop falling, he said, when foreclosures stop increasing, existing home sales are strong and the unsold inventory gets far below its current level of 19,058.”

“While agents report overbidding on some foreclosure properties, Christopher Thornberg, a principal at Beacon Economics in Los Angeles, said that interest is coming from ‘vulture funds’ with millions of dollars to spend on distress sales.”

“‘That process is not in any way, shape or form an indication of a return to stability, a healthier housing market,’ he said.”

The Press Enterprise. “While the number of resale homes sold rose almost 50 percent in Riverside County and 25 percent in San Bernardino County, median prices in both counties dropped 35 percent from a year ago.”

“While foreclosure sales accounted for 43.6 percent of all of July’s Southland sales, DataQuick analyst John Karevoll said they were an even more dominant factor in the Inland region. They accounted for 64.2 percent of sales in Riverside County and 58 percent in San Bernardino County, and that trend could continue for several months.”

“Karevoll said the Inland communities where foreclosures play the biggest role in sales are those with large amounts of housing stock less than 5 years old. They include such cities as Perris, San Jacinto, Rialto and Fontana.”

“Downward pricing pressures on the resale side are prompting builders to continue offering discounts of as much as 30 percent as they seek to sell off recently completed homes, said Steve Johnson, a director with Riverside real estate consulting firm MetroStudy.”

“‘The entire market has softened in respect to pricing. There are some real bargains out there, obviously,’ he said Monday.”

The San Bernardino County Sun. “The nation’s vicious real-estate meltdown that keeps chewing up and spitting out banks has a new victim: Wescom Credit Union. The not-for-profit Pasadena-based financial entity is closing 11 of its 55 branches in Southern California because of $40 million in losses over the last four quarters.”

“Wescom, a $3.7 billion entity, never made loans to subprime borrowers, according to Jane Wood, executive vice president. Instead, many customers can’t pay off Wescom credit card and auto loan balances because of their financially troubling subprime mortgages serviced by other institutions, she said.”

“So how did customers qualify for risky subprime loans from other financial companies and stringent credit union loans at the same time?”

“‘We made good loans to good members who (passed) the criteria at the time,’ Wood said.”

“‘Credit unions didn’t relax lending standards, but that didn’t stop an individual from getting a car loan (from a credit union) and then getting a low-documentation loan from another source down the road,’ said Daniel Penrod, industry analyst for Rancho Cucamonga-based California Credit Union League.”

The Bakersfield Californian. “Construction at two neighborhoods in northeast Bakersfield’s City in the Hills development has been halted by one of the builders there, K. Hovnanian Homes, a company official said.”

“Some homeowners in Lantana’s Edge are upset. ‘This is what we look at … a barren landscape on a daily basis,’ said Bob Jones, motioning toward the dry dirt.”

“Jones and his wife, Donna Wyatt, moved from New York in December after buying their house online. ‘We were psyched,’ he said, about parks, bike paths and other promised features.”

“Katie Rogers said dust from the empty lots blows in her family’s house ‘all the time.’”

“Corina Hilton, meanwhile, said on top of everything else, her home took more than a year to get built - she bought it almost two years ago, paying much more than units now go for - and has had numerous problems since she moved in at the end of last year.”

“‘I got screwed,’ Hilton said.”

The Atlanta Journal Constitution reports from Georgia. “The anemic housing market should be a boost to Atlanta’s apartment market. But the emerging shift in living arrangements is creating an unusual set of challenges for the industry. Leasing agents are having to contend more with the ’shadow market,’ an industry term that refers to the glut of unsold homes, condos and townhomes that have become rental property.”

“Terry Smith recently leased her two-bedroom townhome in Vinings after she was unable to sell it. ‘Rather than give it away or lose what once was equity, I decided to rent,’ Smith said.”

The Times Herald from Georgia. “While foreclosures nationwide increased by a shocking 50 percent, Coweta County has an even higher rate. Foreclosures advertised in The Times-Herald almost doubled year-to-year, from 70 in July 2007 to 136 in July 2008. That’s an increase of 94 percent.”

“Dr. William Joey Smith, an assistant professor of economics with the University of West Georgia in Carrollton, said that prognosticators were wrong when they predicted that the housing market had ‘bottomed out’ months ago. Last summer, he said, many were saying that the housing market would rebound within nine months. That clearly hasn’t happened, he said.”

“‘It’s been 12 months, and in some areas it’s actually worse than it was 12 months ago,’ he said.”

“Local Realtor Frank Barron said he was clearly wrong when he said back in a March Times-Herald report that he hoped the market had ‘hit the bottom.’ ‘Obviously, we were wrong,’ Barron said.”

“Dr. Smith said that he doesn’t have any statistics to back it up, but he is seeing some ‘anecdotal evidence’ that things are beginning to turn around. ‘I’ve started to see some investors go into housing because they believe it’s just so undervalued right now that they can’t lose,’ he said.”

The Orlando Sentinel from Florida. “A couple of years ago, real-estate investors were so hot on Orlando that hundreds of buyers from around the world paid an average $300,000 — triple today’s prices — for old condos on a run-down corner next to a truck-driving school.”

“For Cay Club buyers, the privileges of ownership were supposed to include access to a charter jet. ‘It was the greatest thing since peanut butter,’ said Colorado resident Robert Shaeffer, who bought a two-bedroom, two-bath unit with about 1,100 square feet for $374,900 sight unseen.”

“Shaeffer, who had retired from IBM, has had to go back to work driving delivery trucks. ‘I invested everything I had in my retirement, and now I’m stuck with a big payment and an apartment that’s no good.’”

“Orlando appraiser Jack Connor reviewed several appraisals in Cay Club and said units were actually worth about one-third of the appraised value — ‘and that was during the good times,’ he added. ‘Ludicrous is a pretty tame word for it,’ Connor said.”

“Dozens of Cay Club buyers are now suing. Investors from as far away as Hungary paid an average $300,000 in the development, while similar units nearby cost less than half that amount, appraisers reported. One Cay Club unit that sold for $510,000 two years ago was appraised recently for $90,000, said Chris Cantrell, a Birmingham, Ala., attorney for several buyers who are suing.”

“Airline pilots, scientists and others who invested in Cay Club said it has been one of the biggest disappointments of their lives. Ventura, Calif., resident Yindy Chow is still reeling from paying the $4,300 property-tax bill on a unit that was supposed to supplement her retirement but has provided none of the rental income promised by sales agents.”

“‘I don’t know what to do,’ she said recently. ‘Some people want to get rich fast. We’ve been saving 20 years, and we wanted to do something wisely and plan on our retirement. It’s really sad.’”

“On Oak Ridge Road, renters who live in what was supposed to become the Cay Club said they have no hope the golf course will reopen. Parts of the walls around the complex are broken down. Neighbors from a low-income area nearby walk through the property and use the pool.”

“Meanwhile, just outside Denver, Shaeffer laments that he cannot pay his income taxes because of the financial burden of buying in Cay Club: ‘Quite frankly, right now you don’t know who to trust in Florida.’”

The Palm Beach Post. “The developer of Tesoro, arguably Port St. Lucie’s most upscale community, is weathering some high-end financial woes. Two affiliates of Celebration-based Ginn Resorts missed principal and interest payments on a $675 million credit facility from Credit Suisse earlier this summer and, so far, they haven’t been able to restructure the debt.”

“Because Ginn still owns 359 lots in Tesoro, owners of the 600 or so other home sites could see their posh clubhouse languish if the company stops paying its association fees - something executives concede is a possibility.”

‘The developer ‘may have to discontinue the payment of certain dues and (property owners association) assessments on the lots that they own, which will put stress on the operations of the Clubs at Tesoro and Quail West,’ Robert Gidel, president of the developer’s holding firm, The Ginn Cos., said in a statement.”

The St Petersburg Times. “The problem with the Tampa Bay area’s rising stock of vacant homes goes far beyond overgrown yards, piled-up phone books and fliers dangling from doorknobs. Deborah Farmer, president of the Greater Tampa Association of Realtors, said she notices the spike in vacant homes firsthand. ‘Over half of the homes I show now are vacant,’ Farmer said, ‘and I bet that number is much the same throughout the area.’”

“Farmer and others also say that what was once an urban problem has spread to the suburbs.”

The Herald Tribune. “During the 12 months ended July 31, lenders issued 7,905 ‘lis pendens’ filings — the first step in a foreclosure — against borrowers who failed to make their mortgage payments in Sarasota County, court records show. During the same period, the 25 lenders with the most foreclosures in Sarasota resold 918 properties that they had seized from borrowers.”

“James Slocum, for example, bought a house at 2210 McTague St. in North Port for $251,9000 in December 2005 and borrowed $226,700 to finance the deal. Deutsche Bank foreclosed on the loan in June 2007 and won a $246,576 judgment the following month.”

“Deutsche Bank then sold the three-bedroom two-bath house to Matthew White in December 2007 for $138,500, or 44 percent less than the giant German bank was owed.”

“Deutsche Bank is further up the foreclosure list than local heavyweights like Bank of America, SunTrust and Wachovia because it got into the region’s housing boom late, said Ken Thomas, a Miami-based economist who specializes in analyzing the banking industry.”

“‘Local banks are usually the first ones in a market, and when they see problems building, they are the first ones out,’ Thomas said. ‘Lenders like Deutsche Bank and HSBC were the last ones in and the last ones out.’”

The News Press. “Lee County’s unemployment rate jumped to 8.4 percent in July, the highest mark in at least 18 years, as the county continued to lose construction jobs. The rate means that just more than 24,000 people were out of work, according to data released Friday from the Florida Agency for Workforce Innovation.”

“The rate is the highest since 1990, when state and federal officials changed the way they measure unemployment. The figures mirror numbers usually seen in the Rust Belt.”

“Patricia Alzate, of Cape Coral, lost her job as an assistant project manager for a painting contractor in April. ‘This is the first time in my life that I have been out of work and I don’t know what to do because I have never been in this situation,’ Alzate said. ‘I’ve applied and applied and applied for jobs, but I’m not getting anything.’”

“The massive fallout from the construction sector underscores how badly Florida, and Southwest Florida in particular, needs to diversify its economy, said Ray Kest, an associate professor in the MBA program at Hodges University.”

“‘It has hit every single sector,’ Kest said. ‘There are no jobs and no jobs being created. Our economic development people sit around and talk about all of this, but they should have been doing something about it a long time ago. We are used to hearing these numbers from Ohio and Michigan, but we are right there with them.’”

“It sounds like a winner: upscale, high-rise shops and condos right on the waterfront in downtown Fort Myers. But a nationwide slump in real estate - which has hit Southwest Florida particularly hard - has forestalled a lot of development.’

“‘Fort Myers is not an island. We are affected just like anyone else’ said Jean Sanders, a high-rise specialist for Remax International in downtown Fort Myers. ‘Any new construction just doesn’t have a chance in this market.’”

“Downtown Fort Myers won’t sell yet because of simple math: too many condos on the supply side and not enough demand for them.”

“‘If you have 100 apples in a barrel and you only have to eat an apple a day. Are you going to worry about the apples near the bottom? No,’ said Sanders. ‘Some of the killer deals that are already out there need to get sold before any new sales pick up.’”

The Naples News. “More buyers are reaching into their wallets to purchase homes in the Naples area. Sales continued to rise in July. There were 361 home sales, up 31 percent from 275 a year ago, according to a monthly report by the Naples Area Board of Realtors.”

“In some communities in Southwest Florida, such as Bay Colony, Pelican Bay and Bonita Bay, there is less than a year’s worth of inventory for single-family homes, said Dottie Babcock, chief operating officer for John R. Wood Realtors Inc. in Naples. Her company’s own market report found that in the Naples, Bonita Springs and Estero markets, there is a four-year supply of homes, compared to a five-year supply a year ago.”

“‘I definitely see the market turning around,’ said Babcock.”

The Miami Herald. “A lawsuit filed by creditors in Puig Inc.’s bankruptcy blames Ocean Bank for contributing to the collapse of the Hialeah condo converter. Ocean Bank has blamed Puig’s collapse largely on the developer’s aggressive expansion and the downturn in the real estate market. The bank lost more than $20 million lending to Puig entities.”

“‘They are trying to blame Ocean Bank for market losses that they experienced because of the collapse in the condominium market in 2006,’ said Joel L. Tabas, a Miami lawyer representing Ocean Bank. ‘The creditors’ committee’s efforts to pin the responsibility for the market collapse and for other people’s bad investments on Ocean Bank is going to fail.’”

“Six defendants have pleaded guilty to participating in a $17 million mortgage fraud scheme in Miami-Dade County involving inflated property values and falsified closing statements, Florida’s attorney general announced Monday.”

“The six were among 15 people arrested in July. The arrests stemmed from an investigation of Miami-Dade County’s mortgage fraud task force. The task force was set up last year to combat the crime, which became epidemic in South Florida during the real estate boom.”

“When the money was disbursed, the defendants would take the difference and share it among themselves, funneling it through a bank account or shell company operated by a coconspirator, the attorney general’s office said.”

“Retail real estate follows residential trends, so Florida shopping center developers fear a spreading credit crunch will turn their current headache into a hangover.”

“‘It’s going to get worse before it gets better,” said Robert Smith, senior VP of a Houston developer planning to rebuild the old Crossroads Mall in Largo as a mixed-use project. ‘The days of just building a center and waiting for the market to catch up to fill it up are gone.’”

“‘There is money to borrow if you are willing pay the price and put up 10 to 35 percent,’ said Raul Valdez-Fauli, chief executive of CNL Bank in Coral Gables. ‘This credit crunch is for real.’”

“Stanley Tate, a Miami developer who left the board of Fannie Mae two years ago and chaired the Resolution Trust Corp. cleaning up the excesses of real estate lending in the 1990s, added ominously that developers face an easy-money, subprime loan crisis of their own.”

“‘The residential market has not bottomed out yet, but $1.4-trillion in distressed loans will start to hit the commercial real estate market next year,’ he said.”

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