The Housing Bubble

It’s Friday desk clearing time for this blogger. “After George Zito’s mother passed away, he put her East Haven home on the market. That was 6-months ago. And, still, there are no prospective buyers. The four bedroom was originally listed at $187,000. ‘We just lowered the price by over $40,000,’ Zito said.”

“Zito says he is going to do whatever it takes to make a sale. ‘I’m going to do what it takes to sell the property. I have to. And I pray to god it does go.’”

“After 20 years of living in the Baldwin Township home, the three-bedroom, ranch-style brick home Randy and Cindy Balzer bought in 1988 for $50,000 is now valued at $80,000 by the Allegheny County tax collector, but the Balzers now owe $112,000 to their mortgage lender after refinancing the house several times.”

“Wells Fargo Bank is foreclosing on the couple’s house because they have made no payments on the mortgage since it adjusted to the higher rate of 15.9 percent in March 2007.”

“‘We didn’t stop making payments,’ Randy Balzer said. ‘We kept sending them the $810. They kept sending it back to us saying that’s not the mortgage rate. I kept saying yes it is. If somebody keeps sending you $810 back and you’ve got other bills you can pay off, what are you going to do?’”

“In a sleepy, winding street in the town of Brewster, realtor Marietta Nilson is walking through a vacation home she’s listed. WBUR’s Curt Nickisch: These days, the house has been too quiet for the sellers. They first put it on the market at $636,000.”

“Nilson: In November. And we didn’t have any interest. No one was interested in the house. “Nickisch: So after a few months, they lowered the price. Five ninety five. Still no interest. Nilson: And then 550 I guess. So…”

“Nickisch: Down almost a hundred thousand dollars? “Nilson: Yeah. But, it wasn’t that the value came down, the value was never there. It was never worth $636,000.”

“Nickisch: But the owners felt it was worth a shot.”

“In Frederick County, damage to foreclosed properties is a growing problem as foreclosure listings rise, real estate agents said. When broker Diane Miller Marsden came to tour a foreclosed property recently, she found the interior of the once immaculate home turned to chaos.”

“The master bathroom was cleared out — toilet, sink and shower stall, gone. ‘The only thing left was the drain in the corner,’ she said.”

“The situation can make for angry ex-homeowners. ‘They feel like they weren’t treated fairly by the bank, and if they can’t have the home, no one can,’ said Terry Fox, a real estate agent in Frederick.o’Everyone reacts differently. Some people know they got in over their head and move on, while others are bitter.’”

“On a recent Tuesday morning, St. Croix County Sheriff Dennis Hillstead stood in the courthouse hallway and began to speak. No one was there to listen. ‘Going once, going twice, three times… sold,’ Hillstead says. ‘Hearing no bids, the bidding is closed.’”

“‘A few years ago people were buying properties at foreclosures and flipping them after fixing them up,’ Hillstead said, ‘but not now.’”

“Prospective buyers need to make sure there aren’t second or third mortgages on the property, and they need to find out what condition the home is in, Hillstead warned. There was a foreclosed property, Hillstead recalled, where the people moved out and turned off the heat, but left the water running.”

“‘A neighbor saw water coming out of a second floor bathroom window,’ Hillstead said.”

“Myrtle Beach-based custom home builder Seacoast Communities Inc. has filed for Chapter 11 bankruptcy, the latest builder to be caught in the throes of the real estate downturn. The company has been struggling to pay its bills since investors pulled out of deals on seven upscale homes, said Seacoast Communities President Guy Collins.”

“‘They just walked away from the deposits rather than close on them because of the market slowdown,’ Collins said. ‘The houses were 100 percent complete, and we were ready to go to closing, and they said they weren’t willing to close on the properties.’”

“This year, more than ever, it appears Cheyenne residents facing foreclosure are choosing to abandon their homes instead of negotiating payment options. What’s troubling to Jim Ward, a former real-estate agent who now offers foreclosure advice, is that many people are overreacting. A lot are losing their homes unnecessarily.”

“‘Most people aren’t in as bad a shape as they think,’ he said.”

“Susan Mosco has watched her neighbors in Tomball lose their homes and disappear. ‘They’re foreclosing on all these houses. Honey, I’ve been here for six months. I’ve seen 12 people move from this subdivision,’ Mosco said.”

“Foreclosures are hurting not only the families being forced out, but the homeowners left behind. ‘I put a pretty good-sized down payment down on it when I bought it. I don’t think I could sell it right now,’ Matt Travis said of his home. ‘I paid just over $120,000 for it, and I’m just guessing, I probably wouldn’t get $94,000 if I tried to sell it.’”

“It’s taking a few more days for those additional ‘For Sale” signs popping up around town to draw in a buyer. ‘That’s still a pretty hot economy no doubt about it,’ said Amarillo economist Karr Ingham. ‘I don’t know about slowing down necessarily, but maybe at least cooling off in terms of the really dramatic growth that has resulted.’”

“For Midlanders, Realtors said, the increased inventory has caused some frustration for sellers who are used to seeing homes sell within hours of hitting the market and can’t understand why they may have to cut their price a little to find a buyer.”

“‘We’ve seen more price reductions than we’ve seen in probably the last six months,’ said Chris Beckett at Pine & Beckett Realtors. However, Beckett said, while that’s hard for homeowners to reconcile with, it doesn’t mean the offers they’re getting aren’t consistent with the increase in home prices from last year.”

“‘It’s a great market in Midland. It’s just they’re not getting these incredibly high prices,’ Beckett said of buyers. ‘They’re getting really good prices. You can’t always have incredible.’”

“King County housing sales have dropped 12.2 percent in the second quarter of 2008, a trend experienced every quarter going back through 2007. The second quarter drop represents a 36.4 percent decrease over the same quarter in 2007. The new figures also note that the county’s median resale price of $450,000 - second highest in the state behind only San Juan County - has fallen some 4.3 percent.”

“The picture Harry Oestreich, Snoqualmie’s finance director, drew was not pretty. ‘Our economy is driven by one industry - the home construction industry,’ Oestreich said. ‘We are in a housing crisis, and everybody is agreeing there is no bottom yet.’”

“‘This is the slowest July I have ever seen in real estate,’ said Jim Brennan, a real estate broker who has worked in Central Oregon for several decades. ‘We had some prices that were going up 30 percent, 40 percent in one year, in certain price ranges.’”

“‘There’s a lot of land that was sold in Bend for very high prices,’ Brennan said. ‘And now, if you can find a buyer, it would go for half the price. Every block you go in town, there’s probably four out of 10 houses that are for sale, in one form or another. Where I may have shown seven or eight houses before, now I’ll show 30 houses before anybody makes a decision - if they make a decision.’”

“Jill Armstrong and her husband bought two acres of land in Redmond and got city and zoning approval, creating 16 town home lots. ‘We got it through on time and under budget, thought we were doing great - until there were no buyers,’ Armstrong said.”

“With so many properties on the market, the Armstrongs didn’t sell, and the bank took it back. ‘We went through a million dollar foreclosure, we lost a rental house, we lost a lot of money we had into it,’ she said. ‘We still have things that we could lose. So it’s a matter of fighting the fight every morning when you get up.’”

“There’s no such thing as liar loans in Hawaii, said Stephen Higa, a mortgage broker who has worked in Hawaii’s mortgage industry for more than 20 years. ‘The industry stopped that six or seven months ago,’ he said, but added that for some the damage has already been done. ‘Most of the people that we see who are in trouble in Hawaii had liar loans.’”

“‘We hardly did any of these loans and the ones that we did were mostly reserved for foreign investors or more sophisticated borrowers,’ said Zoebel Dela Cruz, principal broker of Team Mortgage Hawaii.”

“They were also commonly paired with ‘interest only” features. Even riskier were “pick-a-payment” or option ARM loans - adjustable-rate mortgages that gave borrowers the choice to defer some of their interest payments and add them to the principal.”

“Many Hawaii real estate agents and brokers, who were self-employed, used these loans to finance their own purchases, Dela Cruz said. Now that business has turned, some real estate agents and mortgage brokers are having a harder time making their payments, Dela Cruz said.”

“‘It’s really sad,’ she said. ‘This is a very tough time in the industry.’”

“Casting blame has been easy during this year’s great and ongoing epidemic of home mortgage foreclosures. Greedy bankers sought out suckers and foisted adjustable rate mortgages on them, with little emphasis on the fact that initial low monthly payments would rise within a few years to levels the borrowers probably could never pay.”

“Greedy homeowners and buyers sought out new loans because they figured the astronomical real estate price increases of the boom years early in this decade would continue forever.”

“For many in the past year, house payments became the easiest thing to scrap. Especially when many middle class families found declining real estate prices evaporated all their equity, with home loan balances emerging as higher than home values. At the same time, these families often see comparable homes available for rent at prices far lower than their newly bumped-up loan payments.”

“The result has been a mass tendency to say, ‘To heck with our credit rating, let’s get out of here.’”

“So while it’s easy to blame defaulting homeowners and their bankers, a lot of the problem is simply a sign of people adjusting to new economic realities.”

The Aurora Sentinel reports from Colorado. “When local Realtor Sunny Banka shows any home to a potential buyer, she immediately heads downstairs. As the number of foreclosed and abandoned properties boom with the current housing crisis, copper wire, piping and other building materials are valuable commodities, and often disappear with former owners. ‘The first thing I do is I go to the basement,’ Banka said. ‘Do we have copper plumbing? Do we have a furnace? Do we have a water heater?’”

“A measure proposed by Councilman Bob FitzGerald and drafted by assistant city attorney Jack Byron would target lenders in order to enforce maintenance standards. ‘I’ve talked to people that are really upset, because there are five or six foreclosures on various stretches of various blocks,’ FitzGerald said.”

“For properties with two mortgages from two lenders, Banka said, the problem would be in assigning responsibility.”

“‘A lot of these properties … have two mortgages, there are two lenders. Who is responsible?’ Banka said. ‘A lot of these foreclosures were bundled in with other securities … They were sold as investments on Wall Street.’”

The Deseret News from Utah. “Utah’s economic outlook is grim, and relief may not be on its way any time soon, economists at a conference hosted by the Utah Association of Appraisers said Wednesday. Jim Wood, director of the University of Utah’s Bureau of Business and Economic Research, told the audience at the summer symposium in downtown Salt Lake City that the current economy is ‘a recessionary environment.’”

“‘I’ve been following the housing market for 35 years, and I’m as pessimistic today as I’ve ever been,’ Wood said. The current downturn rivals the economic woes Utah experienced during the 1980s, he added.”

“‘Construction employment is just killing the job numbers,’ he said, noting that the state has lost about 15,000 jobs in that industry alone.”

“Rick Lifferth, president of the Utah Association of Appraisers, said that many people in his industry are feeling pressured to inflate values in order to please lenders and sellers. He said the practice of padding property values is so pervasive that it is almost commonplace, and it is hurting the credibility of his profession.”

“‘In the residential business, it’s become more of the norm than the exception,’ he said. ‘You come up with any number the customer wants, to keep the business.’”

“Wood said that the number of foreclosures in the state would likely rise significantly in the coming months.”

“‘Right now, we’re at about 4,000 foreclosure filings in Utah’ in 2008, Wood said. ‘I don’t think there is any way we’re going to keep that below 12,000 or 13,000′ in the next year, he added.”

The Arizona Daily Star. “The question of whether we’re at the bottom is of special importance to one group of players in the real estate market: land investors. Seeking big returns down the line, hedge funds and other big investors are eyeing Arizona’s acreage and waiting for the market to drop to its lowest possible point before making a move, said Will White, a Tucson broker for Land Advisors Organization. That’s the good news.”

“The bad news is they aren’t in any mood to start buying yet, he said.”

“Prices for new homes - a prime indicator of land values - are still falling. Once considered a fairly scarce resource, land suitable for development looks a lot more plentiful now, White said.”

“The average selling price for new single-family homes in the first six months of this year dropped 19.6 percent from the first half of 2006, according to Hanley Wood. The average price per square foot dropped 11 percent over that time, according to the data.”

“Sahuarita and Green Valley: New-home sales are still pretty strong, but prices have taken a big hit, mainly because of heavy competition among builders, White said. Hanley Wood data show an 18.8 percent drop in the average new-home selling price from 2006. The average price per square foot fell by an even steeper 19.5 percent.”

“Southwest Side: Prices were sharply inflated here and are falling hard as builders discount heavily to get rid of inventory, White said. Development may take a while to pick up again as builders work through remaining lots, he said. The average new-home selling price fell 23.1 percent this year from the first half of 2006, according to Hanley Wood. The average price per square foot fell 21.8 percent.”

Las Vegas Now from Nevada. “Home prices may be off nearly 30-percent in Las Vegas, prompting many to predict the worst of the housing crisis may be over. But some Realtors know another round of foreclosures may happen in the next few months, flooding the valley with vacant homes. And people have two things to blame: liars and ninjas.”

“They may be new terms for a lot of us, but liar loans and ninja loans helped push the housing market to the brink of collapse. Now the rates are changing again in September and the scars from those liars and ninjas run deep.”

“Many consider them the villains in the housing crisis, and Realtor Cynthia Glickman says their reputation has been tarnished, ‘Oh yeah, look at these people, you know. They’re liars. They’re getting what they deserve.’”

“‘They assumed the values of the homes were going to go up. So they figured, what’s the worst that could happen?’ said Glickman.”

“The lenders were caught up partly in greed, partly in speculation, hoping the sky-high housing market would keep rising. Now the market seems headed for recovery, but Glickman warns the liars and ninjas have one last sneak attack. ‘There’s going to be another wave of people for probably another good three years,’ said Glickman.”

CNBC on Nevada. “It turns out Las Vegas isn’t recession proof. High gas prices affecting critical tourism from California, airlines cutting back flights, a housing boom burst like a Cirque de Soleil show gone bad, and the seizing up of the credit markets have combined to create what Mayor Oscar Goodman describes as riding out an earthquake in a very secure building: ‘You know you’re going to be safe, you just don’t know when the rolling’s going to stop.’”

“Off the strip, in the residential neighborhoods where the housing boom once burned hottest, realtors say the market is starting to reach equilibrium. That is, the number of homes going into foreclosure every month is almost matched by the number of homes being sold out of foreclosure.”

“Michael Antos of Prudential Americana Group just sold a home out of foreclosure for $350,000 that originally sold for $579,000. To sell the house, the bank not only slashed the price, but put in new carpet, hardwood floors and appliances.”

“‘The market is absolutely great for buyers,’ he said.”

“Trump Tower up the road is reportedly struggling. Trump, like others, built a ‘condo hotel,’ a development which includes hotel rooms and also condos which could be rented out as hotel rooms. Many of these, including Trump’s, were announced as 100 percent sold before a shovel went into the ground.”

“The problem is that many of the buyers were investors who couldn’t get financing when it came time to close the deals. Claims of 100 percent sold fell to more like 50 percent … or less.”

The Las Vegas Business Press. “The most shocking part of a new report on the Las Vegas resort development pipeline isn’t that, despite the economy, there are still more than 40,000 new rooms expected to be built by the end of 2012. The stunner is the dominance of high-end rooms.”

“A new report by Deutsche Bank quantifies the Strip development pipeline and points out that 89 percent of the new supply will be in the luxury category. ‘It is too much,’ says analyst Bill Lerner, who wrote the report.”

“According to the report, nearly 36,000 rooms added from 2008 through 2012 will be luxury. Those include more than 3,000 at Palazzo and nearly 1,300 at Trump Las Vegas, both of which are already open.”

“After that, the projections get dicey. They include nearly 10,000 rooms at the proposed Plaza and Elvis hotels, neither of which is off the ground. It also includes 5,300 at Echelon, which is now on hold.”

“When asked why resort developers would invest so much money in a market when they know competitors are building similar projects, he said the answer was simple: Everyone thinks their project will be the best. The problem is only one will be right, and the rest will be scrapping for business from a finite pool.”

“‘The view is that it is always somebody else’s problem,’ Lerner said of over-saturation. ‘A lot of these firms are willing to slug it out.’”

“The bankrupt $2 billion City Crossing project in Henderson has been effectively declared dead, but disagreements remain over how to bury it.”

“At the formal meeting with creditors on Aug. 14, developer William Plise made a passing reference to finding new equity partners to restart construction, which halted shortly after the Chapter 11 filing on June 2. However, the reorganization plan filed in July mentions only selling the 126-acre site.”

“At this point, lawyers for City Crossing and its lenders are trying to negotiate a settlement of the two major differences between them: How to sell the land and how to deal with Plise’s guarantees to cover any shortfall between the value of the land and the mortgage balances.”

“‘The future sale and development of City Crossing as a whole far outweighs the value of liquidating the project site to discount shopping buyers that are presently in the market,’ according to court documents filed by City Crossing. ‘Importantly, the sale of the property on a parcel by parcel basis will result in a loss of entitlements, which will result in the loss of value to creditors.’”

“In this case, fetching the highest possible price is important not only to the lenders, a mix of banks, individuals and trusts, but to Plise himself because he personally guaranteed all loans. In the event the land sale does not repay all the loans in full, he would have to dip into his own bank accounts or sell other properties he owns to cover any shortfall.”

“In its most recent version, the master plan called for 1 million square feet of offices, 1 million square feet of shopping, two hotels and 2,500 condos and apartments.”

“As the various loans came this year, Plise found it ‘impossible’ to round up fresh financing. ‘The perception among lenders has changed and the lending environment is gone,’ he said.”

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