The Housing Bubble

It’s Friday desk clearing time for this blogger. “To surrounding residents, the vacant home and the cleared field around it are a safety hazard and breeding ground for mischief. Neighbors hear gunshots late at night, and the area has become a dumping ground, littered with crushed beer cans and spent fireworks. The site was left derelict by Summerville Homes, which once planned to build about 30 homes there.”

“The residents at Legends Oaks still worry about their safety. ‘Every time a car comes back here, we’re not quite sure what’s going to happen next,’ said neighbor Steve Clark.”

“Cranbury yards have seen a recent trend, for sale signs are going up faster than they are coming down. ‘Cranbury’s what they call a second-home community,’ said Josh Wilton, a manager at Weichert Realtors Princeton office. ‘(Its) homes are $600,000 or higher. Cranbury is really trapped by the first-time home buyers.’”

“According to the Middlesex County’s MLS, a real estate database used by realtors, 64 contracts in Cranbury alone have expired in the past year, some expiring twice. Robert Blackburn, of Aughenbaugh Realty in Hightstown, speaks not only as a Realtor, but as a seller. He recently tried to sell his own house in Cranbury and attempted to buy something less expensive.”

“Eventually, Mr. Blackburn said he took his house off the market after pricing it so low that he couldn’t afford to sell it. When the market improves, he said, he plans to try again. ”I think the pace of buying homes has damn near stopped,’ Blackburn said.”

“Lisa Murzin-Pelcz needs a miracle to climb out of a foreclosure hole that’s getting deeper every month as she misses each mortgage payment. She’s dangerously close to losing the house in East Hartford where she has lived for the past 12 years with her children.”

“She brainstorms ideas, hanging on to some, quickly discarding others. One day in June she wonders aloud: Could she run a fundraiser? ‘We’ll invite 300 people, at $100 apiece,’ Murzin-Pelcz figures. ‘That would be $30,000. We could get that guy who does a pig roast. I could play my old Grateful Dead albums.’”

“One day, Murzin-Pelcz spots an ad in the paper for a phone-in psychic. The first question is free. ‘Will I lose my house?’ ‘No. I don’t see you losing your house.”

“Murzin-Pelcz isn’t completely reassured. Many nights she isn’t sleeping well, dropping off around midnight, waking up at 3 a.m., rising a few hours later.”

“While she was researching bankruptcy at the local library, she saw a newspaper with a story about how the new state programs were giving homeowners new hope. ‘I had a laugh on that one,’ she says.”

“Rental prices in Boston stabilized to correct the bubble in the rental market, said Oscar Brookins, an associate professor of economics at Northeastern. ‘There was some indication we needed a decline. There was a bubble in previous years, which implies that people were speculating,’ Brookins said. ‘There has been lots of construction since the mid-90s when the city eliminated rent control. The population in Boston is declining. Landlords built their expectations too high.’”

“Livingston County home sales jumped 39.2 percent in July. Realtors disagree on whether or not that means the housing market has turned the corner. Mike Meloche, broker in Howell, said he believed many of July’s home sales were closings started earlier in the year or the year before and said the increase is independent from the rest of this year’s trends.”

“‘Once we look at the whole year and average it out, we’ll find that our numbers are still worse than they are last year,’ Meloche said. ‘We’ve been quite spoiled in our industry in this country for many years. We kind of created a monster with property values.’”

“Gay Puckett, an agent in Austin, is the second agent Richard and Roxanne Bailey have used to sell their newly painted, five-bedroom home in Round Rock. Richard Bailey thought the home would sell for about $300,000 to $310,000 in about 45 days, based on sales in late 2007. The Baileys, who have downsized to a smaller home, have now lowered the price to $279,000 and are offering to pay $5,000 in closing costs.”

“If they don’t have a buyer by September, Bailey said they’ll be forced to lease the house and wait for a year to try to sell it.”

“In Hyde Park, Janet and Richard Cunningham are eager to find a buyer for a two-bedroom condominium, where their daughter lived while attending graduate school. The Cunninghams have lowered the price to $185,000 from $190,000.”

“‘Our agent is telling us the real estate market is just completely flat,’ Janet Cunningham said.”

“A Scottsdale home builder recognized two years ago as an up-and-coming business has collapsed in the weak market, leaving in its wake lawsuits by investors, lenders and contractors. In a recorded conference call with investors in May, company founder Michael Roberts said he was doing everything he could to get them at least some of their money back. ‘We hope it’s better than fifty cents on the dollar,’ he told investors.”

“In 2006, Debra Lynn Lawrence of Northridge, Calif., invested $600,000 of an inheritance with Charlevoix to build homes at its Montage community in Chandler. ‘I’ve been run through the wringer on this,’ Lawrence said. ‘I’m wondering how I’m ever going to get my money back.’”

“Her attorney, John Breslo said Charlevoix Homes made a lot of promises it could not keep. ‘Everything was fine as long as everyone was making money,’ Breslo said. ‘But as soon as the music stopped, they realized there weren’t enough chairs.’”

“The historic building once known as the Garden City Commercial College and later the Babs Apartments, is being renovated into condominiums, starting at $268,000. The most expensive units, which are house-sized at more than 1,300 square feet - are close to $500,000. While that might be out of the price range of most Missoulians, Realtor Ed Coffman says the price won’t be a problem.”

“‘I don’t need it to be priced for everyone - just one or two people,’ he said. ‘And those people are coming to Missoula now. Sometimes it’s a second house. Sometimes it’s someone who lived here, moved away to make their fortune and now is coming back.’”

“Lane County saw more than double the number of home foreclosures in July, compared with July 2007, according to RealtyTrac. And, increasingly, banks are stuck with the foreclosed homes because foreclosure buyers won’t ante up the amount needed to pay off the failed mortgages and take possession of the houses, as they would have done a year ago, said Casey Hogan, chief credit officer at Pacific Continental Bank.”

“‘Today, it’s a little more difficult because you’re not seeing the values escalate at 12 to 15 percent a year like we were not too many years ago,’ he said. ‘(Buyers) have to be more careful because it may take them longer to flip it.’”

“Among the lush landscapes and expensive neighborhoods on Eagle’s Floating Feather Road stand the casualties of a booming housing market gone bad - a modern-day ghost town of unfinished new homes.”

“And Idaho bankruptcy trustees and attorneys say more homebuilders face the same fate. ‘Everybody’s guilty: lenders, mortgage brokers,’ said Bernie Rakozy, a bankruptcy trustee in Boise. ‘All these people were making a lot of money, and then the faucet gets turned off. There was way too much blue sky in the price of the homes.’”

“Thank you to the Canyon Lake Chamber of Commerce for hosting County Assessor Larry Ward for his Prop13/Prop 8 presentation on August 13. I attended this meeting because I received a letter stating my property value increased and I would be subject to the maximum two percent bump in value for next year’s taxes. I was wondering how this was possible considering the free-fall in home prices since September 2007.”

“With all of the foreclosures in our community, the assessor’s office is having trouble determining the ‘real market value’ of a home due to lack of ‘traditional sales.’ If I put my house on the market today, there is no way a reasonable person would buy it for anywhere near the assessor’s valuation.”

“Unfortunately for people in my situation, not only are we kicking ourselves for buying at the top of a bubble, we are not getting the relief that is by law due to us under Prop 8.”

“The central bankers of the world will be gathering next week for their annual meeting at Jackson Hole, Wyoming. When they met in Jackson Hole in 2005, the meetings were devoted to an Alan Greenspan retrospective, honouring his 18-year tenure as Federal Reserve Board chairman.”

“I suspect that the elite Jackson Hole crew will not be debating whether Greenspan was the greatest central banker of all time this year. The world is now facing the most serious financial crisis since the Great Depression. That’s not my assessment; those were the words of Alan Greenspan.”

“And, how did we get here? Well, the centrepiece in this story is that the United States allowed an $8tn housing bubble to grow unchecked.”

“Between 1996 and 2006, house prices rose by more than 70%, after adjusting for inflation. In the previous century, from 1896 to 1996, house prices had just kept even with the overall rate of inflation. When you suddenly see a sharp divergence from a long-term trend like this, it is reasonable to look for an explanation.”

“If the run-up in house prices could not be explained by the fundamentals, then it was a bubble, which would burst. This was easy to see for anyone who cared to look, but Greenspan and his sycophants could not be bothered. Greenspan insisted that everything was fine - there was no housing bubble - and virtually the whole economics profession acted as enablers touting Greenspan’s wisdom.”

“The economic elites were convinced that everything was just fine. Their new mantra is ‘who could have known?’”

“The same group of economists that led the economy into this catastrophe still has its hands on the wheel. Holding them accountable for their disastrous performance is simply not on the agenda.”

“There should be a ‘Trees Don’t Grow to the Skies’ seminar required at every investment bank, commercial bank, investment manager and mortgage lender in the land, and mandatory meditation sessions for the directors of these institutions who sat by and watched the leveraging of America go on without muttering a word. Now that I think of it, it might be essential for the regulators of such institutions as well.”

“Trees didn’t grow to the skies in Europe either. The housing bubble has burst in the U.K., Spain and Ireland. Japan may already be in a recession. In short, our expectations have to be reduced. Trees don’t grow to the skies.”

The Ledger reports from Florida. “The battle for Polk County property appraiser has been a battle over appraisals during hard economic times. In his campaign against incumbent Marsha Faux, Rusty Boedicker has enumerated one property after another to demonstrate what he perceives as inequity in the county’s property assessments. Boedicker, a real estate agent in Lakeland for six years, estimated that 60 percent of properties countywide are overassessed, while others are taxed at an unreasonably reduced rate.”

“He cited a property on Lake Hollingsworth that sold for $1.8 million in 2006, but is assessed at $1.3 million. ‘That’s just not right,’ he said. ‘It makes you wonder what’s really going on.’”

“Faux said she’s familiar with that property, which was purchased by a couple who didn’t negotiate the price.”

“‘When that came through our office, we called about it because it just didn’t seem right,’ she said. ‘They wanted that house at any price, and they paid the price that the seller named.”‘

“Faux said the price was high for that area, so her office set the assessed rate at the market level. ‘We have to do that for many properties,’ she said.”

The Tampa Tribune. “Luxury condominiums in downtown Tampa could be up for grabs soon for about $100,000 each. But there’s a catch: you’d have to buy all 171 units for at least $17.2 million, the minimum bid. That’s a bargain, considering units were originally marketed for about $200,000 to $1 million, and the developer owes the bank more than $47 million.”

“‘That’s a good deal,’ said Jack McCabe, owner of McCabe Research & Consulting in South Florida. ‘This is just the beginning of the good deals to come. The best deals will be had by people with lots of cash.’”

“Fida Sirdar, who heads Key Developers, told the Tribune in March that he hoped the bankruptcy protection would enable the company to turn the development around. In fact, Sirdar said at the time, he had so much faith that the real estate market in Tampa would improve that he was planning to start two more towers in 2009.”

The St Petersburg Times. “Sirda signed up buyers for two eight-story condo towers in 2005. But by 2007, buyers were suing by the dozens to back out of deals.”

“This probably won’t be the last condo-related auction: Projects such as the Towers at Channelside and Trump Tower Tampa also are inching their way through bankruptcy court. Trump Tower is little more than a lot on the Hillsborough River, but developers expressed fear last month that their multi-million-dollar property may be subject to a fire sale if they don’t get a cash-rich investor.”

“An apartment complex at W Hillsborough Avenue and Countryway Boulevard is going condo and - well - clothing-optional. The Eden, on its Web site, says it will soon allow nudity in a ‘private European/South Beach style swimming pool and spa area.’”

“Condo officials say the Westchase homeowners need not worry about property values. ‘If their concern is how this amenity will affect their community, on a real estate level, it’ll only help increase the traffic and interest for all neighboring communities,’ said the Eden project manager Peter Mead.”

“Neither Mead nor Norman knew how many condos had been sold as of Tuesday, but the buzz has been strong, they said. They say they have received inquiries from around the country and abroad about the units, which range from $170,000 to $380,000.”

“Andrew Bassford of Riverview worked in the construction industry for 20 years and spent the last 15 years earning what he thought was a ‘decent wage’ as a journeyman bricklayer.

“Until recently, he said, the work was steady. But residential development has ground to a halt, and state-allocated funds for school construction has been suspended.”

“‘It’s frustrating,’ Bassford said. ‘I just want a job that will pay most of my bills. So far, I haven’t found anything that will cover 50 percent of my bills. And my expenses are low. I own my own home and I’m ahead on my FHA Federal Housing Administration loan.’”

“‘I’ve given up looking for construction work,’ he said. ‘I got my Class A driver’s license so I can drive freight trucks.’”

The Herald Tribune. “Before the economy went sour, patients in local therapy sessions talked mostly about traditional emotional problems like marital discord, familial troubles or depression, local psychologists say. But recently, as job losses, with home foreclosures and economic woes mounting, many therapy sessions have begun to focus more on how people are suffering from stress and anxiety related to their finances or employment.”

“‘I’m hearing every day about people being laid off,’ said Roxane Dinkin, a psychologist in Bradenton. ‘I’m hearing every day about homes going into foreclosure. Sometimes, I hear it every hour. It’s affecting people from all walks of life.’”

From Business Week. “Apartment rents have stabilized or dropped in Florida, Nevada, and Arizona as landlords compete for tenants with desperate condo and homeowners, including those leasing properties they’re unable to sell.”

“In the Naples (Fla.) area, for example, home prices fell 29%, to $275,000, in July compared with a year earlier, according to the Naples Area Board of Realtors. Rents are falling, though not nearly as much: In the Naples metropolitan area, rents fell 9.4% in the third quarter compared with a year earlier, according to AXIOMetrics.”

“Still, the average monthly cost of renting an apartment in Florida is 50% to 60% of what it costs to own, according to Jack McCabe of McCabe Research & Consulting in Deerfield Beach, Fla.”

“‘If [home] prices were going up and you could hold on to [a house] for a long time, you might be able to make a case that it’s a better time to buy,’ McCabe says. ‘But if you have the ability to rent for half the price without the liabilities that go with owning, it’s a smarter decision to rent.’”

“Buying a home makes little sense, especially if the buyer doesn’t plan to use it frequently, according to Vincent Valvo, whose company puts out monthly home sales data on Massachusetts, Rhode Island, and Connecticut. ‘It makes no fiscal sense whatsoever to buy a second home-it barely makes fiscal sense to buy a first home,’ he says. ‘If you rent, you know what the costs are. If something breaks, it’s somebody else’s headache. It’s a vacation.’”

The Naples News. “Q: Do you have any idea what’s going on with that condo project called The Carlyle behind Mel’s Diner in Bonita? It looks finished, but its been empty for more than a year now.”

“A: The Carlyle just looks empty, Deborah, but it’s really the slow housing market. The developer of the five-story, two-building housing complex - aptly named Carlyle Development, LLC - finished construction in November, but only 15 of the 60 units have been sold.”

“The place looks abandoned because of the 15 sold units, only six are occupied and only one is occupied on a year-round basis. However, a few more of the sold units are ready to rent out, so you should see some more activity at the complex in the coming months.”

“Realtor Mickey Gifford, one of three real estate agents selling the property, said the sale of the units has been extremely slow. The last one closed in January.”

“The real estate agents have opened up a furnished model to hopefully speed up the sales on the three-bedroom, 1,700 square foot units, but it could be some time before The Carlyle is bustling with activity. All the units come with all appliances and are ready for residents, expect for a couple homes that still need flooring, but there’s no rush as plenty of others are available.”

The Sun Sentinel. “When no one responded to a call for bids Thursday at the Broward County Courthouse, a condemned Lauderhill apartment complex reverted to the bank that has a $20 million investment in the place.”

“The 26-building Villas of Lauderhill had plenty of company at the public auction. Nearly all the foreclosed homes and condominiums offered during the traditional ‘courthouse steps’ fire sale failed to attract buyers.”

“Lackluster turnout at court foreclosure auctions is becoming common, according to lawyers who frequent such auctions to bid for mortgage lenders. ‘Last year, there would be tons of bidders. This year, there’s barely anyone,’ said Vincent D’Antonio, a Plantation-based attorney who on Thursday bid to keep three Broward homes for a bank.”

“Many banks are retaining most of their foreclosed properties because there are so few good bid offers at the auctions, said Louis Spagnuolo, VP for WCS Lending in Boca Raton. Also, he said, buyers have stopped attending them, turning instead to banks’ in-house real estate departments to buy property.”

“‘It’s more efficient, it’s a better deal for them and they’re buying in a non-competitive arena,’ Spagnuolo said.”

“During the first half of this year, 23 percent of sellers in Broward County unloaded their homes at a loss, according to sales data analyzed by the Sun Sentinel. In Palm Beach County, the percentage was even higher - 27 percent. That’s a significant spike from 2006, when only 2 percent of sellers in each county took losses.”

“‘It’s fair to say that some people are desperate,’ said Brad Hunter, a housing analyst in West Palm Beach. ‘But there are others who regret having bought the house at the price they paid and if they can get rid of the obligation of having to continue paying on it, they’re happy to do it.’”

“Most people dumping properties this year bought during the peak of the housing boom in 2004 and 2005. Many strapped homeowners are negotiating so-called short sales.”

“In Broward County, one in three home sales in Miramar in the first six months of 2008 went for losses, according to Sun Sentinel research, which did not include foreclosure sales. Coconut Creek, Parkland and Weston also were among the hardest-hit Broward cities.”

“In Palm Beach County during the same period, West Palm Beach and Palm Beach Gardens both had 34 percent of sellers taking less than they paid. Also hurting were the west-central communities of Royal Palm Beach and Wellington, where property values had soared during the housing boom.”

“James Diehl bought a three-bedroom house in Wellington for $389,000 in 2005 but quickly discovered South Florida was too expensive. The information technology analyst eventually found a higher-paying job in Atlanta, so he and his wife rented their house here for about a year.”

“Knowing they couldn’t sell the house for close to their mortgage amount and determined to avoid foreclosure, the couple worked out a short sale with real estate agents who found a buyer for $284,000 - 27 percent less than the Diehls had paid.”

“‘The economic burden has been lifted,’ said Diehl. ‘Everything happens for a reason. Now we’ve moved to a place where we can settle down, survive and thrive.’”

“Mary Cochrane bought a $290,000 townhouse in Davie for her daughter in 2005. But she didn’t read the fine print on her adjustable-rate mortgage and saw her monthly payments rise a year later from about $1,600 to $2,400. She said the lender wouldn’t modify the loan.”

“She eventually contacted her neighbor, a real estate agent who suggested she try a short sale. He found a buyer for $175,000 - 40 percent less than Cochrane had paid. ‘It was a blessing,’ said Cochrane. ‘I sleep at night now.’”

“Gerry Thompson bought at the height of the housing boom and soon regretted it. He paid $585,000 for a Fort Lauderdale home in 2005 for his daughter, an investor. But values started dropping the next year, and the house needed major repairs. Fed up, Thompson sold it five months ago for $380,000 - a 35 percent price cut.”

“Because he didn’t qualify for a short sale, he had to bring $83,000 at closing to make the deal work.”

“‘I was quite happy with the sale price, although it was considerably less than what we had in it,’ said Thompson, who splits his time between northern Florida and North Carolina. ‘We’re done with the real estate business, believe me.’”

“Hunter, the West Palm Beach housing analyst, said the mistakes that people have made in this real estate cycle will be remembered for decades.”

“‘What’s happening is historic,’ he said. ‘Much will be written about it in textbooks, articles and essays long after we’re through this.’”