The Housing Bubble

The San Gabriel Valley Tribune reports from California. “The government takeover of mortgage giants Fannie Mae and Freddie Mac could lead to a dramatic drop in homeownership if they become privatized, an industry group said Tuesday. Looking down the road, privatization of the two agencies would result in a ‘big set of obstacles for homeownership in the future,’ said Joel Singer, executive vice president of the California Association of Realtors.”

“‘Without the implicit guarantee of a partnership between the government and the secondary market I think mortgages would be substantially higher relative to where they’ve been historically,’ Singer said.”

The Times Standard. “Fannie and Freddie have historically helped stabilize the housing market. If the organizations were to become exclusively profit-driven, said Humboldt Association of Realtors President Tom Hiller, housing prices would likely go up.”

“‘We hope they don’t throw the baby out with the bath water,’ Hiller said. ‘Both the CAR (California Association of Realtors) and NAR (National Association of Realtors) will be looking to the new Congress to make sure these entities are saved as opposed to privatized.’”

From Metro Active. “Alberto and Rosa Ramirez pick strawberries eight months a year and earn around $400 a week doing so. Rosa and her sister, out shopping for food, spotted the newest issue of La Ganga magazine, got home, plunked down on the couch to read it and found a real estate ad promising, ‘With Maria and Rafael you can do it-you can buy a house,’ that sounded awfully good. ‘Buy with us and we’ll give you furniture” sounded even better.’”

“And that’s how Alberto, Rosa and Jesus, in the summer of 2005, ended up at the Rancho Grande Real Estate office in Morgan Hill to ask a few initial questions about buying a house. They say they told real estate agent Maria Avila that they weren’t able to afford much. No problem, they recall Avila saying. We’ll find a way.”

“The world Maria Avila created for the financial community to review, he was an ‘agricultural expert’ who owned his own business and boasted an income of around $100,000 a year.”

“From the beginning of their house-bidding process, Alberto, Rosa and Jesus suspected something was a bit off, because the $720,000 loan needed to buy it would ordinarily require a mortgage payment of around $4,800 a month.”

“‘At the height of all this, back in 2005 and 2006, pairs of real estate agents used to circle around places like Home Depot,’ says attorney Pamela Simmons, who represents the Ramirez and Martinez families. ‘They’d pick up a group of day laborers in their SUVs, bring them out to a property they were selling to ‘cut the weeds and fix the place up,’ and then at the end of the day, pay them well and ask, ‘Are you guys by any chance renters? If so, you really ought to buy a house. In fact, how about this one you’ve been working on all day, right here?’”

“Overall, the Ramirez and Martinez families put $39,000 into the house. Maria Avila put in around $29,600-and collected 3 percent as seller’s agent, again as buyer’s agent and a third time as loan agent for a total of $64,800. She netted around $35,200. The families have lost their former affordable farmworker housing, their $39,000 and their house.”

“This is the nature of many of the questionable practices that are leading to boarded-up neighborhoods everywhere Pamela Simmons’ law partner, Bill Purdy, describes these practices as “the root cause of hundreds of thousands of foreclosures.”

“‘What happened to the strawberry pickers at the hands of that particular broker is symptomatic of a massive tidal wave of foreclosures breaking across the state. There will be wave after wave of them. There are many, many more latent foreclosures out there. The approaches used were different, but the result was exactly and invariably the same.’”

“As if the housing crisis weren’t bad enough, the latest side effect is an uptick in neighborhood blight around the South Bay. City code enforcement officials are reporting an increase in the number of homes left vacant and neglected, in large part because of foreclosures. Since last summer, more than 300 such homes have been identified, according to the city, and that means windows boarded up, broken glass and overgrown landscaping.”

“Of those, about 41 percent are bank-owned homes and most of them are clustered around the East Side of San Jose. The surge of foreclosures has made it tough to track down the offenders, said Wayne Chen, policy development officer in the housing department.”

“‘There are bank-owned properties that some folks are taking off and leaving the properties as is,’ Chen said. ‘Because the city is so large, there’s potential for a lot of home sit; it’s hard to proactively monitor them.’”

The Contra Costa Times. “A record number of Contra Costa homeowners failed to pay their property taxes last fiscal year, costing the county $116 million. The rising delinquency rate comes as no surprise to most watching the mortgage meltdown - if homeowners can’t afford mortgage payments, they probably can’t afford the twice-a-year property tax installments.”

“‘It’s been substantial,’ said Russell Watts, Contra Costa’s chief deputy tax collector.”

“Many of the delinquent tax bills are the result of foreclosures, as homeowners often include property taxes in their mortgage payments, Watts said.”

“As the 2008-09 fiscal year tax bills hit Contra Costa mailboxes this month, Watts said, even more people could fail to pay. In addition, assessors worry that homeowners will read their assessed property values and question why their neighbor’s home is selling for $100,000 less.”

“Homeowners don’t realize assessments are based on Jan. 1 values and not current property values, said Ken Blakemore, San Joaquin County assistant assessor.”

“‘That’s a bitter pill to swallow,’ he said.”

The Sacramento Bee. “A financial dispute involving one of Sacramento’s signature condo complexes apparently is turning nasty. As we hear it, officials with project investor Resmark Equity Partners LLC of Los Angeles entered the L Street Lofts building early Friday with the intention of changing locks and assuming control.”

“Representatives of developer Sotiris Kolokotronis then arrived at 1818 L St. and tensions escalated, resulting in police being summoned.”

“‘We got called out after it became a little physical,’ says Sacramento police spokeswoman Michelle Lazark. She says police ‘mediated’ and tempers cooled.”

“Where things stand now is unclear. The sales team is still in place, in offices across from the glitzy eight-story condo complex, considered a symbol of midtown’s residential and retail renaissance. Among buyers of the project’s pricey penthouse units are mayoral candidate Kevin Johnson and Sacramento Kings star Kevin Martin.”

“What’s behind the financial dispute between Resmark and Kolokotronis? It could be Resmark’s concern that fewer than half of the 92 units - priced between $389,000 and $1.2 million - have been sold since L Street Lofts opened last year.”

From KSBW. “Falling property values are putting a strain on the Salinas city budget. Mayor Dennis Donohue said foreclosures are also cutting into the property tax revenue for the city.”

“One Realtor said homes that sold for $600,000 in 2006 are now selling for between $320,000 and $300,000. The lost home value translates into a significant loss of property tax revenue for Salinas - an estimated $4 million for 2008.”

“Donohue said this year’s budget has reserves built in for the shortfall, but the 2009 budget is looming and city leaders will have to do more with less. ‘It has created a 10.2 percent budget gap in 2009, about 12 months from now,’ said Tom Kever, the City of Salinas finance director.”

The Voice of San Diego. “Attempting to fight urban decay in San Diego’s neighborhoods hit hardest by foreclosure, a plan to buy up foreclosed properties here is gaining traction and some national attention. The plan, known as a land bank, would assemble taxpayer, private and philanthropic dollars to purchase foreclosed houses.”

“The push for a land bank comes after local governments have worked strenuously to artificially lower home prices for the region’s low- and moderate-income residents during the years-long housing boom.”

“By purchasing homes in neighborhoods that could have further to fall, the land bank attempts to stop the bleeding of home values for owners in foreclosure-heavy neighborhoods. The plan’s supporters acknowledge that by opening a net under falling prices, the action potentially undercuts the market’s own mechanism for achieving affordability — falling prices.”

“‘It’s a big ocean, you know?’ said Jim Bliesner, director of the City-County Reinvestment Task Force. ‘The land bank isn’t going to be large enough to buy [all of] the houses currently in foreclosure on an ongoing basis. Both can coexist.’”

“But even contemplated on the national level with $4 billion allotted for such programs, the idea falls short in light of the extent of the foreclosure problem, said economist Chris Thornberg, principal at Beacon Economics.”

“‘It’s a drop in the bucket,’ he said. ‘It’s not going to stop anything.’”

The LA Daily News. “Home prices might be plunging across California, but the Golden State still dominates the nation’s 10 most expensive housing markets. California accounts for eight of America’s 10 priciest places to buy a house, according to the Coldwell Banker Home Price Comparison Index released Tuesday.”

“Coldwell Banker has been putting out this list for 21 years, and California has always been at the high end, said Jim Gillispie, the company’s CEO. That’s true even now, as the state experiences some of the biggest price drops in the country.”

“‘They came up so much in California (before the declines), it still puts you at a higher price point than the rest of the country,’ Gillispie said.”

“And the reason for such longevity may surprise you. It’s the landmark Proposition 13, passed in 1978, that capped the annual property tax at 1 percent of a home’s value, said Daniel Blake, director of the San Fernando Valley Economic Research Center at California State University Northridge. Most other places have a tax rate of 2 percent to 2.5 percent, he said.”

“‘In California you can pay a higher mortgage and therefore buy a more expensive home for the same amount of money than you can in a place where you have higher property taxes,’ he said.”

“There are two other reasons why California features expensive residential real estate, Blake noted: the economy and the Mediterranean climate.”

“‘It (such a climate) is offered in about eight places in the world, so this is a very nice place to live,’ he said. ‘And we have a lot of really good jobs.’”

The Wall Street Journal reports on Florida. “During the housing boom, Florida attracted hordes of speculators. By some estimates, more than half of all the deposits for Miami condos were put down by people planning to flip them for a profit without living in them, says Jack McCabe, CEO of McCabe Research & Consulting in Deerfield Beach, Fla. But developers built far more condos than demand could absorb. The glutted Miami market now has close to 50,000 units — a record four years’ worth of inventory — for sale or under construction.”

“Faced with such sobering prospects, many buyers no longer want to close on their properties, as they risk steep losses when they try to sell. In some buildings, as many of 30% of condo buyers are turning to the courts in an effort to cancel their contracts. If unsuccessful, they have to either go ahead and close on a unit they no longer want or walk away and lose their deposits.”

“Dora and Umberto Arena, of Hollywood, Fla., are among the thousands of investors who are looking to the courts for relief. When the Arenas bought their deluxe $595,000 condo in Hallandale Beach, developers urged them to move quickly to put down their $120,000 deposit. The planned 283 units at the Ocean Marine Yacht Club in Hallandale Beach sold out in only three weeks when they were offered to the public three years ago.”

“‘We saw this beautiful 48-slip marina in their brochures, and it sounded wonderful to have a place for a boat and to live in that brand new building,’ says Ms. Arena.”

“Despite the name, the Ocean Marine Yacht Club has no marina, as the developer was unable to secure the necessary permits. ‘We were inundated with literature touting it as a marquee feature of the complex while the developer was failing to disclose it didn’t have the necessary permits or approvals,’ Ms. Arena says.”

“Ironically, the growing number of lawsuits may actually make the problem worse. A high rate of units contested in court makes buyers nervous about closing and moving into a half-empty complex, which further depresses the market, says Mr. McCabe. That, in turn, will give buyers more incentive to sue.”

“‘Real-estate lawyers nationally are closely monitoring the Florida lawsuits, expecting a wave of similar claims across the country as more condominium projects are completed.”

“‘The market in Florida is two years ahead of other parts of the U.S., like California or the Sunbelt states, in both the heavy downturn in prices and the lawsuits following it,’ says attorney Robert M. Chasnow.”

The Palm Beach Post. “The government takeover of mortgage giants Fannie Mae and Freddie Mac sent stocks soaring Monday, but the bailout is unlikely to do the same for home prices, real estate experts say. Pessimistic observers see little connection between Sunday’s move and home prices in Palm Beach County and the Treasure Coast.”

“It doesn’t make homes significantly more affordable, and it doesn’t hold back the flood of foreclosures in Florida.”

“‘The three key factors are still inventory, foreclosures and affordability,’ said Jack McCabe, a housing analyst. ‘We still have way too much inventory, way too many foreclosures and prices that are out of whack with incomes.’”

“Prices for ‘middle-management’ housing in Palm Beach County are well off over the past two years, according to Coldwell Banker’s annual Home Price Comparison Index.”

“The survey calculates the price of a 2,200-square-foot house with four bedrooms, two and a half bathrooms and a two-car garage. The typical such house in West Palm Beach costs $334,750, down from $507,750 in 2006, a decline of 34 percent.”

“In Boca Raton, the tab is $462,125, down from $623,750 in 2006, a 26 percent drop.”

From Florida Today. “Apartment tenants have become more difficult to find and keep as Brevard County landlords endure the faltering economy. ‘We have lost tenants because of the economy, and we haven’t been able to bring people in,’ said Roberta Altman, owner of the Pines in Indian Harbour Beach and several other rental properties in Brevard. ‘We have vacancies in some of our rentals that we never had before.’”

“‘We’ve had more people move out of the area due to job loss,’ Larry Berry, president of the Space Coast Apartment Association, said. ‘The construction trade industry here has pretty much stopped.’”

“One apartment complex in Palm Bay found it had to offer two months’ free rent and a gas card worth several hundred dollars to attract tenants. ‘That’s what it’s starting to take. That made it more affordable for them,’ said Jackie Collins, business manager for Woodlake Village Apartments.”

“With 462 units, it is the largest complex in Brevard, said Collins, who added that there has been a ’substantial’ increase in tenants breaking their leases. To stem the tide, rental prices were lowered, even for present tenants.”

“‘You have to take care of the business you have,’ Collins said. ‘You have to do the same for them.’”

The Orlando Sentinel. “With the high-rise cranes gone from downtown Orlando’s skyline and the region’s home builders still in a funk, the outlook for construction jobs in Central Florida is bleaker than it has been in many years.”

“Commercial projects have absorbed some of the jobs lost by the slump in residential work, but the market for offices and warehouses has also weakened. Construction employment in Metro Orlando, after peaking at 87,800 in June 2006, has shrunk by nearly 15,000 jobs, a drop of almost 17 percent.”

“‘The slowdown has finally reached commercial,’ said Todd Andrew, founder and president of Andrew General Contractors Inc. in Orlando. He recently laid off about half his staff, and the number of subcontract workers on his job sites has dropped by 50 percent, too. His company lost several major projects recently when the customers’ financing fell through.”

“‘I’m just scraping by, doing what I can,’ said Steve Oakley of Orlando.”

“A professional framer for more than 12 years, Oakley’s construction career ‘went down the tubes,’ he said, when the region’s home builders slammed on the brakes more than a year ago. For now, he’s helping a friend paint apartments for $12 an hour, but he really needs to make $18 to $25 an hour for financial stability.”

“‘I’ll do anything to make ends meet, as long as it’s legal,’ Oakley said.”

The Naples News. “As the year comes to a close, the outlook for employment in the Fort Myers-Naples market is expected to be one of the worst in the nation. Locally, only 10 percent of companies plan to hire more employees while 43 percent expect to reduce their payrolls. Another 47 percent will keep their staff the same size, according to the survey. That means there is a negative employment outlook of minus-33 percent.”

“In Lee County, the unemployment rate rose to 8.4 percent in July, up from 7.6 percent in June and 5.1 percent last year.”

“‘Clearly we are in a recession. It’s going to deepen I suspect before it gets better,’ said Michael Reagen, president of the Greater Naples Chamber of Commerce.”

The Herald Tribune. “In a year marked by a 50 percent jump in unemployment and a record number of foreclosures, the economy and jobs were the top worry of 22 percent of county residents questioned in a survey taken in July and August for the county.”

“Last year, the economy was hardly a blip in the annual county survey, ranked as a top concern by 4 percent. Five times as many people cited the economy and jobs as a concern this year.”

“The findings contrast with the boom years, when the county’s annual survey found the biggest local worries had to do with handling all the prosperity. Growth, traffic and affordable housing were the top concerns between 2002 and 2006.”

“‘You could have taken a poll just about anywhere in Florida and you’d find the same thing,’ said Susan MacManus, a University of South Florida political scientist who conducted the survey.”

“Ninety percent of those considering a move say they would move out of the state. Those considering a move were asked what could change their minds. The most common answer was ‘nothing,’ which was given by 29 percent.”

“The verbatim responses of those who said they were leaving Sarasota County went from the aesthetic ‘Miss the seasons,’ to the practical ‘it will be easier to be where our children are,’ to the economic ‘My wife lost her job,’ and the irritated ‘The government is a mess.’”

“For several people, the Sunshine State had lost its luster. ‘Anywhere else besides Florida’ and the ungrammatical ‘I’m just fed up with state’ were among the renderings of quotes taken by the surveyors.”

“Osprey resident Kenny Hochstetler said he considered leaving when gas prices and insurance rates began going up. The idea was to move to a cheaper area, but Hochstetler realized he could not sell his home in the poor real estate market. ‘I don’t think I’m going anywhere for a while though,’ he added.”

The News Press. “Lee County is drowning in more than 22,000 open foreclosure cases while the county is forced to send to the state surplus dollars from the fees assessed to process the foreclosures.”

“Clerk of Courts Charlie Green is fed up and is ready to withhold $200,000 to $300,000 from foreclosure and other court fees his office collects to clear the backlog, rather than feed state coffers.”

“‘If we can do it and there is no other way, then I have no choice but to withhold funds to get these cases adjudicated,’ Green said. ‘What are they going to do, cut my eyes out? Beat me to death?’”

The Tampa Tribune. “In the heart of Apollo Beach, hidden by swaths of vacant land, is a scene reminiscent of the boom years. In the midst of the worst housing downturn since the Great Depression, one company is moving forward with plans to develop 6,400 homesites in a 2,350-acre master-planned community.”

“The developer, San Diego-based Newland Communities, hopes Waterset will kick-start the local real estate market. And it’s betting the troubled market will be ready before the planned grand opening next fall.”

“Even Newland executives admit their optimistic plans are somewhat risky in a saturated housing market. Other developers have put plans on hold or have scaled back dramatically. Some builders face foreclosure on their land and are selling at fire-sale prices. Across the Tampa Bay area, there are shells of subdivisions that started during better times and have stalled.”

“‘Other builders and developers may look at us and say, ‘They’re crazy,’ said Pam Parisi, regional marketing director for Newland. ‘But we have a real passion for this. We want to be ready to pull the trigger when the market comes back.’”

“There are more than 31,000 vacant lots scattered throughout the area, according to housing research firm Metrostudy. That’s on top of 2,982 empty homes that builders have been unable to sell. Homes are selling so slowly that Metrostudy estimates it could take more than five years for builders to work off all the inventory of finished homes and lots.”

“Jack McCabe follows the state’s housing market and said Waterset is unique, aggressive and risky. ‘How do we keep adding on to an oversaturated marketplace?’ McCabe said. ‘Some developers think that when others fail, that’s when they’ll succeed. But this is a move that comes with a heightened degree of risk during these very uncertain times.’”

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