The Housing Bubble

It’s Friday desk clearing time for this blogger. “The biggest residential building ever to be built in downtown San Diego will celebrate its topping-off early this month. Sales at the Vantage Pointe began with a blitz one weekend in March 2004, when 337 units — half of the building — were reserved in one day. Buyers stood in line, excited, their refundable $5,000 deposit in hand.”

“‘At one point there was almost a fight,’ said Brad Willis, one of the first people in line that weekend. ‘I had two fellas in line in front of me and there was some debate about who was first, and I stepped in and I said, ‘Hey guys, chill out.’ It was really kind of a frenzy.’”

“Committed to paying $330,000…Willis, one of the first people to reserve a unit in the building, said he and other potential buyers may seek discounts when they move in, but that in general, he understands the developer’s situation.”

“‘They don’t control the real estate market, and that’s a given,’ he said. ‘But from ‘06 to ‘09 — that’s a pretty substantial delay. … I’m guessing that most people who are still in the game are a lot like me. They want to live downtown, they want a fair price.’”

“Randy Klapstein, CEO of Pointe of View, said the developer will work with the buyers, but might not be able to lower prices past the point they committed to sell the units for already. ‘I don’t know how much lower they want us to go,’ he said. ‘We obviously care about them, but they have to care about us. If they think that a developer can actually build at a loss, then that’s not going to work.’”

“Brisbane’s median house price - currently about $450,000 - will hit $1 million in only seven years time and continue to climb, reaching $20 million by 2044, according to an in-depth research report by property firm Johnston Dixon.”"

CEO John Johnston said as ’staggering’ as the predictions sounded, they were based on growth values of the past 37 years. ‘Brisbane’s median house price has grown by 10.8 per cent annually for almost four decades,’ he said. ‘If values continue to grow for the next 37 years the way they have for the past 37 years, Brisbane will move into the sphere of generational home ownership.’”

“Remax Morningside principal John Kubatov said although he considered the figures a little ‘optimistic,’ they were not out of the question. ‘I’m not sure whether doubling the median house price in seven years is completely realistic but you know, I would say you’d go close,’ he said.”

“It is the Mount Isa residents who are feeling the pinch of the falling property values. Skye Wells and her partner bought a property in Happy Valley for $365,000 in August 2007. Despite spending $30,000 on renovations, she only received a property valuation of $370,000 12 months later.”

“Ms Wells said, based on the lower than expected valuation, they decided not to sell the property. Instead, they rented it out for a higher than expected amount. ‘For investors it’s a good situation because the rent is so good but for people who own a home and want to sell it so they can leave town, they’re not able to - they’re trapped in Mount Isa,’ she said.”

“The declining value of the three-bedroom, 1970s’ brick home in Chedworth Park, Hamilton, reflected the local market where demand is relatively weak. But the owners, who didn’t want to be named, bought the home for $280,000 in June, suggesting they bought well in the prevailing market conditions.”

“In Wellington, the drop for the three-bedroom, weatherboard home in the Lower Hutt suburb of Waterloo was also in keeping with easing values in the Hutt down 6% since January. Owner Darren Walton, who bought the property in 2001 for $215,000, wasn’t too worried as he had no intention to sell. ‘As long as it doesn’t go under $215,000, I’m not doing too badly.’”

“Spain today is in the throes of a dramatic downturn. Jose Luis Valdivieso, a professional driver in Madrid, benefited from the boom but now sees the bust destroying his daughter’s family. Like so many Spaniards, Valdivieso bought an apartment in 2000 and was able to sell it a couple of years later at more than double the price. He repeated the deal, acquiring a much larger place after profiting, again, on the sale of the earlier property.”

“Then came the crash. He has had to watch as his daughter, a more recent homeowner, found herself at a devastating disadvantage. She purchased an expensive apartment, its price inflated by the real estate bubble, in one of the so-so southern neighborhoods of Madrid, availing herself of the cheap loans offered at the time. But interest rates shot up and now she can barely make payments, Valdivieso said.”

“‘The economic situation is worse than we all predicted,’ Spanish Economy Minister Pedro Solbes told El Pais newspaper recently. ‘We thought it would happen slowly but instead it has hit fast.’”

“Leanne Donaldson, 28, and her partner Paul Langford, 25, are in danger of losing their home in Cheshire. They earn a combined total of £30,000 and said they purchased their home in September 2007 for £116,500. They borrowed £122,500. Repayments cost them £800 per month.”

“‘We can’t afford to live,’ says Leanne. ‘We also want kids, but we can’t afford to have them. We can’t carry on living like this.’”

“In Greater Vancouver, August MLS sales were down almost 54 per cent to 1,568 units, compared with 3,348 units in the same month a year ago. ‘This summer, sales went off a cliff,’ added economist Tsur Somerville, who is director of the centre for urban economics and real estate at the Sauder School of Business at the University of B.C.”

“‘I think it was not a willingness to pay more,’ said David Watt, president of the Real Estate Board of Greater Vancouver. ‘We hit a level where buyers simply could not. They weren’t able to borrow more money or whatever. That’s a real, true market taking care of itself.’”

“Heidi Samuda listed her Arbutus Village townhouse for $829,000 three weeks ago. Samuda added that she has bought and sold several times, and has managed to get the price she has wanted, even in markets turning down.

“‘It was just a matter of wait and see and the right buyer will walk through the door,’ she said. ‘I think one has to hold firm to that, obviously within reason.’”

“‘It’s no different than markets we’ve seen in the past in Vancouver,’ added Samuda’s agent, Lorne Goldman. ‘It’s a market where 50 per cent of the people are extremely happy: Buyers.’”

“James and Elizabeth Smith said they are in danger of losing their home in Columbia after nearly 40 years. The Smiths bought their Oakland Mills house in 1969. The couple decided several years ago to tap the equity in their home by taking out another mortgage, using it to pay off credit card debts and to complete improvements to the house. They got behind in payments, and the bank is now trying to foreclose on the home, James Smith said.”

“‘We are, quite honestly, seeing people from every demographic, every socio-economic background,’ said Anne Balcer Norton, director of foreclosure prevention at St. Ambrose Housing Center. ‘From people who have $80,000 homes in Baltimore City to $850,000 homes in Montgomery. We’re seeing every end of the spectrum.’”

“Brittney Heincy, who is trying to sell an East Side rental home, said the glut of homes on the El Paso market has caused prices to slow down.”

“‘There’s so much on the market, so we’ve priced it (rental home) a little bit lower’ than other homes she and her husband saw for sale in the same area, Heincy said. ‘My personal opinion is this will all change when the military (Fort Bliss expansion) hits. I think prices will start going back up.’”

“Rita Ruiz is in a vicious financial circle. After digging herself into debt to try to help her son from losing his home last year, the north Phoenix resident is facing foreclosure herself. ‘It’s getting harder and harder for me to make my payments,’ Ruiz said. ‘When my son put his home up for sale, he didn’t get the full amount that he should have. So he didn’t pay me back what he owed, and I got stuck with the bill.’”

“Councilman Richard Alton said the mortgage crisis has affected him on two levels.”

“‘I lost my job about eight months ago in the banking industry,’ Alton said. ‘And my wife, who was in real estate, lost hers four months ago. So we have felt the effects of the economic strain. It has pushed me into retirement a little early. But it’s OK. We’re all in this together.’”

“Realtor Alex Fox is staging a one-man parade of homes that starts today at an upscale Woodland housing subdivision he’s been marketing for more than a year. Fox said he has spent more than $100,000 to decorate and furnish six of the homes for his event.”

“The parade is an effort to overcome changes in the lending market earlier this year that put several of the homes back up for sale. ‘The market changed and lending programs crashed,’ said Fox, also an agent in Vancouver.”

“The mortgage lending debacle did away with jumbo mortgage loans, a product Fox had counted on to finance prospective buyers of the nine high-end homes his event will feature. Six months ago, he had buyers lined up and ready to go.”

“‘But the sales didn’t close,’ Fox said.”

“Britain’s plan to cut taxes and offer incentives to first-time buyers is sure to fail and smells a bit of Ponzi. It would be far better to acknowledge that British housing prices are much too high and likely to fall substantially from here, and to try to do what little can be done to soften the side effects.”

“Attempting to keep the unstable enterprise afloat by luring new buyers is a strategy headed for failure, and where it succeeds is bound to be a disaster for any unfortunate buyer who takes it up.”

“‘Encouraging first-time buyers to enter an over-valued and sharply falling market seems like an odd thing for a government to be doing,’ said Ed Stansfield, a London-based economist.”

“I had to listen to the definition of Robert Shiller’s proposed ‘continuous workout mortgage’ four times to be sure that I understood it. I could listen to it a hundred times and not believe that an educated person could say something like the following: ‘The mortgage contract lowers your balance if home prices fall and protects you against price falls.’”

“Whom, exactly, does he propose to take the loss in such a circumstance? How likely is it that a lending institution would make a loan in a situation in which the value of the house might decline? People who can’t afford to buy in a neighborhood with reliably appreciating values could kiss their chance getting a mortgage goodbye.”

“The previous writer who applied the term ‘ivory tower’ to Shiller was spot-on. I guess that things like this are what I’ve expected from Shiller ever since, years ago, I heard him ask if San Francisco is really a better place than Cincinnatti.”

“It made me wonder when the last time was when he got out of New Haven…or, even, the house.”

The Dahlonega Nugget reports from Georgia. “Lumpkin County began feeling the the building bubble burst in mid-2005, says Clarence Stowers, who has been in the construction business for 29 years. That’s when ‘calls and inquiries sort-of went away,’ he says. ‘With so many houses available, there just wasn’t any need to build more.’”

“‘I listen for good news, but these days it’s hard to find in construction, or anything development related,’ says Lumpkin County Development Authority Executive Director Bruce Abraham. ‘I’ve had grading contractors calling just begging for work. Engineers and architects are offering to do free consultations just to get a foot in the door in hopes of a contract.’”

“‘I usually have had two or three on-going jobs,’ Stowers says. ‘In the past I’ve been able to pick and choose, but right now I’m basically bidding just to get a job, and there are 30 contractors bidding on the same job. Profit margins are really, really low.’”

“Michael Gilstrap’s grading business had 17 employees last year. Now he is down to three-himself, his son and one other long-time employee. ‘We haven’t got anything to do. I’m looking at selling two or three pieces of equipment and probably going to work for someone else for a while,’ Gilstrap says. ‘I can’t compete with all the people who are underbidding jobs. If there’s no money to be made, what’s the use of going out there’”

“‘It’s amazing what this slowdown has done to people’s morale and attitudes,’ Stowers says. ‘There’s a place I’ve been doing business with for years, and they are not longer allowing people to charge. I had to wait the other day for them to clear my check. It’s tough, it’s hard times. Never in my life have I seen it this bad in Lumpkin County in construction.’”

“The glut of houses on the market, a cautious buying public and the increased difficulty of getting loans is having an effect on the residential real estate industry as well. Local realtor Vic Dover of Dover Realty says he began seeing the slowdown at the end of 2007.”

“‘There was a brief flurry in January, but it’s dropped off to very little activity. The number of phone calls and of people actively seeking to buy has dropped off precipitously,’ he says.”

“Sue Jones with Coldwell Banker says last year her sales were $6 million, but ‘this year is a lot different. Eight months into this year I’m probably not at $2 milliion.’ Raw land sales for residential sites are down. ‘I have parcels listed with some of the lowest prices in ages and it’s just not selling,’ Jones says.”

The Palm Beach Post from Florida. “A Palm Beach County real estate investor has pleaded guilty to one count of conspiracy to commit bank fraud and one count of mail fraud. Berry Louidort agreed to forfeit $6.5 million and a 2008 Mercedes, according to a plea agreement filed Wednesday in federal court.”

“According to the latest indictment from federal prosecutors, Louidort was part of a scheme to land bogus mortgages on 37 properties in Palm Beach County and seven in Naples.”

“In one example, Louidort convinced a lender that he had paid $1.03 million for a house west of Delray Beach and walked away from the closing with an ‘assignment fee’ of $250,000, federal prosecutors said in April. The house soon went into foreclosure.”

“The ring also enlisted straw buyers, such as the part-time Publix cashier whose income on loan applications was inflated from $13,000 to $344,000 so she could qualify for $1.3 million in loans on a Boca Raton home.”

“After nearly half a century of building Florida neighborhoods, Oriole Homes Corp. finally met an economic downturn it couldn’t survive. ‘I have shut them down,’ said Phil von Kahle, the court-appointed assignee.”

“The liquidation means Oriole Homes has stopped work on its Mayfair at Lawnwood condos in Fort Pierce and another development in Celebration, von Kahle said. Founded in 1963 by the Levy family, Oriole Homes survived deep real estate recessions in the 1970s, 1980s and 1990s. It also weathered a stormy spell from 1995 to 2002, when losses rose as high as $21 million a year. The company eked out only two profitable years.”

“The economic vise gripping many of Florida’s businesses and residents is prompting Florida Power & Light Co. to slash expenses, and is expected to stunt profits for its parent company.”

“Meanwhile, FPL’s parent company, Juno Beach-based FPL Group Inc., announced Wednesday that its earnings would be less than expected in 2009 - largely because of the housing-driven downturn. ‘This one is much longer and much steeper than we would have ever expected, and it has not bottomed out yet,’ Chief Financial Officer Armando Pimentel Jr. told investors.”

The Marco News. “As with many financial institutions, Marco Community Bank suffered significant losses due to unpaid loans and foreclosures over the past two years. But Marco Community Bank is among one of the smallest to date to file a lawsuit against the mortgage lenders who may be responsible for the situation.”

“The suit alleges that Atlantic Capital, a loan originator and underwriter, along with the other two companies, caused the bank to suffer nearly $20 million in damages by creating, marketing and selling impaired mortgages between June 2006 and April 2007.”

“‘All (mortgage lenders) were thinking about were the fees … They wanted to just push stuff through the pipeline. Far too many people put in sludge that turned to sewage and sometimes it was toxic,’ said Mark F. Raymond, a litigation attorney with Broad and Cassell Associates which is representing Marco Community Bank in the suit.”

The Naples News. “Southwest Florida’s largest privately held community bank has caught the eye of federal regulators. The Federal Reserve Bank of Atlanta and Florida’s Office of Financial Regulation have taken a formal enforcement action against Naples-based Orion Bank, requiring it to strengthen its board oversight, improve its assets and change its loan policies.”

“The bank will also have to develop a plan to better manage its real estate loans, including reducing its risks, and revise its loan policies, including its standards for renewing, extending, or modifying existing loans.”

“Within 10 days, the bank will have to ‘eliminate from its books’ all assets, or portions of assets, that have been classified as a loss that have not be charged-off or already collected.”

“Since 2007, Orion has filed more than three dozen foreclosure actions in Lee and Collier counties. The bank has branch offices in Fort Myers, Cape Coral, Estero and Marco Island. It’s also had problem loans in such counties as Manatee and Sarasota, and on the east coast of Florida, where it has a handful of branches.”

“Orion has been making adjustments in its operations since the shift in the market, said Jerry Williams, Orion’s chairman, president and CEO. Last year, it formed a special assessment department to deal with problem loans, he said.”

“‘You don’t know your roof leaks until it rains,’ Williams said.”

“In August, new foreclosure filings fell for a second month in a row in Lee County. There were 2,154 filings last month, down from 2,301 in July, according to the Lee County Clerk’s office. They reached a record high of 2,518 in June.”

“‘It’s trending per day downward, but the backlog is increasing,’ said the county’s Clerk of Courts Charlie Green. ‘We now have over 22,000 that have not been disposed of. There is not a final judgment.’”

“He expects to see more declines in coming months. ‘The number one reason is they are just running out of foreclosures. There are just not that many more properties to be foreclosed.’”

The Bradenton Herald. “The number of foreclosure filings in Manatee County fell slightly in August from the record-breaking heights the month before. August saw 456 foreclosure filings, according to Manatee County Clerk of Court records, bringing the total for the year to 3,616.”

“The number of foreclosures so far this year has eclipsed the number of foreclosures in all of 2007 by nearly 1,000, and there are still four months to go.”

“While local Realtors report that much of their recent business has been in distressed sales, it doesn’t necessarily mean that the property is being given away. The median price of existing homes sold in Bradenton-Satasota in July was $230,100, well above the state average, according to the Florida Association of Realtors.”

“‘It’s very difficult to work with a buyer who is looking at short sales or foreclosures because they think they are going to get it for a steal,’ said Ron Cornette, director of training and marketing for Wagner Realty.”

“Since the beginning of the year, only two homes in Manatee County have been listed in MLS as being sold in time to stop the home from becoming bank-owned. What many people making offers on these homes or even the bank-owned homes aren’t taking into consideration is that the banks are hurting, too, Cornette said.”

“In some cases, banks will have to take losses because they are owed more than the home is worth, but that doesn’t mean they will sell the home at half of its market value. ‘We spend a lot of time making offers that are never going to fly,’ Cornette said.”

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