The Housing Bubble

9 News reports from Colorado. “Jay Yake is a Realtor who has been in the real estate industry for more than 25 years. Yake says the local housing market, with more than 20,000 unsold homes, is picking up but ‘it could be a lot faster.’ Yake shared possible changes that may have to take place to lower the inventory of unsold homes. Perhaps the most unwelcoming option, is the lowering of home prices by sellers.”‘

“Sometimes the news isn’t good and you just have to bite the bullet on occasion. Nobody wants to hear that prices may have to come down. It’s just not the market where it was where a seller put a sign on their yard and wait for all the contracts to roll in,’ said Yake.”

The Denver Channel from Colorado. “Colorado mortgage brokers kept a close eye on the bailout debate going on in Washington, D.C. Then there’s the question if the government will offer help to homeowners struggling with their mortgages now. Denver mortgage broker Lainey had her doubts.”

“‘I don’t know how they’re going to come up with a program that is actually going to bail a person in foreclosure status or has too much credit card debt,’ said Hamrick. ‘I can’t imagine we’re going to see that happen.’”

“Still, Hamrick said the outlook for Colorado’s housing market looks good, and will continue to improve despite the market meltdown on Wall Street. ‘I still think real estate one of the best investments you can put your money into,’ Hamrick said.”

“‘The most important thing is to buy the right house,’ Hamrick said. ‘And make sure you’re not overpaying.’”

The Tucson Citizen from Arizona. “Median home prices in Pima County in August hit a 44-month low and posted their largest single-month fall off in more than a decade, according to data compiled by the Tucson Association of Realtors. The fall in home values could leave 1 in 3 county homeowners over the near term owing more on their home than it’s worth, according to the Southwest Fair Housing Council.”

“Steve Randles, a top Realtor at Coldwell Banker Tucson, bought an investment property in the Catalina Foothills. If he sold it now, he’d lose $40,000. ‘If I had to sell it now, I’d be in trouble,’ he said.”

“So, he plans to wait for the market to improve, prices to rally and to get his investment back. ‘Nobody thought we’d lose four years of value from the market,’ Randles said.”

“Most homeowners who bought during the middecade boom will be able to refinance their homes at an extra 2 percent interest rate, said Mike Hannley, president of Bank of Tucson. On a $200,000 home, under a 30-year mortgage at 5.5 percent interest, the monthly payment would be about $1,130. At 6.5 percent, the payment would be $1,250. That’s only an extra $120 a month to stay in the home, he said.”

“‘The people who will be out of their house shouldn’t have been in their houses in the first place,’ he said.”

The Arizona Daily Star. “Throughout Central and Southern Arizona…prevalent risky-mortgage lending helped people stretch themselves too far in their real estate purchases. Maricopa real estate broker Shawn Schlegel said almost all of the resales in the area are distressed or foreclosed properties, and property values have plummeted since the high point around 2006.”

“‘The same house I sold at the peak for $265,000, I sold for $110,000 four or five months ago,’ he said.”

“Looking strictly at total dollar values, without taking population into account, Maricopa County was the country’s second-highest-grossing county in high-rate loans made from 2005 through 2007, according to the data. About $42.7 billion in high-risk mortgages were made in Maricopa County during those years.”

“Los Angeles County took the top spot with $96.4 billion. Pima County was No. 53 with about $5.2 billion.”

“Anthony Sanders, an Arizona State University finance professor, traces the rash of risky lending back to government initiatives to increase homeownership among lower-income families. ‘We opened the floodgates for this and had absolutely no damage control,’ Sanders said.”

“Maricopa Mayor Anthony Smith said he simply thinks ‘it was greed’ by everyone. ‘The practices just seemed to be doomed for a collapse,’ he said.”

“Local builder Pathway Developments Inc. and its president, Michael F. Teufel, filed for liquidation bankruptcy Sunday, according to bankruptcy court records.”

“Preliminary filings indicate that the debts of Teufel and his companies could range from $55 million to more than $150 million. The documents also state that there will likely be no funds available for unsecured creditors.”

“Potential creditor David Blair said he lost $125,000 invested in Pathway project Stone Crossing. Blair, who was initially the owner of the site and sold it to Pathway, said he selected Pathway because he liked their work.”

“Blair said he has not filed a lawsuit because he suspects Pathway does not have the funds to repay any of his $125,000. ‘Going after Mike Teufel does no good,’ he said. ‘If they don’t have the money to pay you, they don’t pay you.’”

The Spectrum from Utah. “In the throes of a nationwide economic downturn, unemployment in Washington County continues to rise. Data indicate Washington County is experiencing its highest rate of unemployment in more than four years.”

“Mark Knold, chief economist for the Department of Workforce Services, said Washington County has lost more than 2,000 construction jobs this year, a product of a county-wide construction slowdown.”

“The slowdown, he said, came as a result of the dramatic disconnect between housing prices and wages. Many have been forced toward foreclosure, he said, as prices jumped 75 percent over the previous five years, culminating at the height of the housing boom.”

“In contrast, Knold said wages increased only 25 percent over the same five-year period. ‘The market isn’t going to get back to life until prices and affordability meet each other,’ he said. ‘Unfortunately, it could take years for those prices to come down.’”

The Review Journal from Nevada. “The Las Vegas housing market is ‘moving along’ and eating through excess inventory of foreclosures, which now account for about 80 percent of resales, a local housing analyst said Monday.

“Dennis Smith of Home Builders Research reported 829 new- home sales in August and 3,051 recorded resales. New-home sales are down 48.3 percent from a year ago at 7,324 units, while existing-home sales are down only 2 percent at 18,720 through August.”

“Median home prices continued to slide. The new-home median was $256,000 in August, a 3.4 percent decline from the previous month and a 24 percent decline from the same month a year ago. The resale median price dipped to $200,000, down 4.8 percent from July and down 27 percent, or $75,000, from August 2007.”

“New-home permits fell to 485 in August, compared with 668 in July and 802 a year ago, Larry Murphy of SalesTraq reported. Overall, permits are down 55 percent for the year at 4,216.”

“Murphy’s seeing an increase in high-rise foreclosures, including five at SoHo Lofts and three at Panorama Towers in August.”

“‘Qualified buyers are still out there,’ Smith said. ‘I’ve talked to brokers who are very busy with foreclosures, getting them ready for sale, and I’ve talked to a few people investing in distressed properties. Las Vegas’ housing market is not going to die and blow away. There are many respectable economists around the country that have said Las Vegas will be one of the first markets in the country to turn around, but not tomorrow.’”

“Las Vegas-based Applied Analysis reported 1,282 new foreclosures during August, which remained consistent with preceding months. Las Vegas had 1,266 new foreclosures in July and 1,294 in June, the research firm reported. Foreclosures are down 12.9 percent from the same month a year ago.”

“The current foreclosure pace represents about 41 home take-backs every day. The number of homes in foreclosure also remained high at 4,827 units.”

“Developer Rich MacDonald understands the challenges of the local real estate market, yet he’s proceeding with an estimated $160 million to $180 million in new-home construction and community enhancements at MacDonald Highlands.”

“About 40 custom homes are under construction in the 1,200-acre master-planned community off Horizon Ridge Parkway in Henderson, carved into the hillside of the McCullough Mountains. Most of them are in the range of $3 million to $4 million.”

“‘People are starting to combine lots here,’ MacDonald said as he showed a $9 million mansion being built with a waterfront view on DragonRidge Golf Course. ‘You see how modest it is.’”

“When MacDonald started selling one-third acre lots in 1999, they were priced from $85,000 to $130,000. ‘Those were the days,’ he said. ‘Now they’re $135,000 to $700,000 and $800,000.’”

“Military historian Jim Hinds blames the housing bubble and mortgage lending practices for triggering the economic slump. It was foreseeable that making loans to individuals with bad credit records would lead to loan delinquencies, he said. ‘There was a certain recklessness that was involved,’ he said.”

“Southern Nevadans are panicking and considering extraordinary steps to avoid losing more money in the stock market, real estate and even bank savings accounts, according to Peter Atkinson, president of Black Mountain Rock Community Bank.”

“Harvey Cohen, a retired senior executive, also singled out the housing and mortgage industry blow-ups as a catalyst for the country’s current economic and financial woes. No one will buy homes now, he said, because they think prices are going lower. As a result, more people are losing their houses to foreclosure and the supply of houses is increasing, driving prices lower.”

“He also blamed rampant mortgage loan fraud. Two years ago, ‘every criminal trying to buy my house was looking for a mortgage-fraud deal,’ he said.”

The Associated Press reports on Florida. “Al Ray is so strapped for cash, the only time he eats out is on Wednesday or Sunday, when the local McDonald’s sells hamburgers for 49 cents. Ray lost his engineering job last November, and has been working as high school tutor, scratching out about $1,000 a month - if he’s lucky. He struggled to make his $1,400 monthly mortgage payment and $330 monthly homeowners’ association fee until May, when he stopped paying.”

“Ray is looking for work and renting out a room in his two-bedroom condo in Davie, Fla., for $500, but his monthly income doesn’t match his expenses and he’s facing foreclosure. ‘I barely have money to survive,’ he said.”

“Ray is one of more than 7.5 million people - almost 15 percent of American homeowners with a mortgage - who are spending half of their income or more on housing costs, according to 2007 data released Tuesday by the U.S. Census Bureau. That is up from nearly 7.1 million the year before.”

“‘We had a bubble,’ said Dean Baker, co-director of the Center for Economic and Policy Research in Washington, D.C. ‘This is a case where we absolutely want the market to adjust.’”

The Wall Street Journal. “In 2003, Robert Provost snapped up a $2.5 million villa in Sarasota, Fla. A finance chief for an auto-sales chain, he earned more than $250,000 a year and had an impeccable credit history.”

“Then he lost his job. Provost missed one $10,500 mortgage payment, then another. This month, he put his house, a five-bedroom with sweeping views of the Intracoastal Waterway, on the market for $3.4 million. But the listing thus far has attracted little interest. Provost says he expects to receive a notice of default from the bank in the next month or two.”

“‘A foreclosure would be devastating,’ he says. ‘My wife and I would have to start from scratch.’”

The Herald Tribune. “It is hard to imagine conditions getting worse in the Manatee condominium market. Nearly 400 condo owners have defaulted on loans since the beginning of the year, Manatee County court records show. A handful of developers, including Venice master builder Mike Miller, have been forced to surrender projects to their banks.”

“‘I had clients who walked away from a $90,000 deposit,’ said Jo Rutstein, an agent with Sarasota’s Premier Properties. ‘In hindsight, they did the right thing.’”

“Miller, who developed The Palms at Riviera Dunes in Palmetto, faced a wave of cancellations and ultimately defaulted on a $23 million loan. As a result, his 108-unit, two-building condo project remains half-finished.”

‘Similarly, Darrel Reha, who borrowed $3.5 million to refurbish the Manatee River Hotel in downtown Bradenton, defaulted on his loan and left the once proud building in sorry shape.”

“‘I have heard other developers are getting ready to walk away themselves,’ Rutstein said.”

“Another investor who defaulted after buying a unit at Watercrest for $695,000 in August 2005 was Re/Max agent Marianne Zoll. Zoll, who financed the purchase with two loans totaling the exact amount of her purchase, did not return calls seeking comment. But a blog she posted on the Internet in October to drum up support for an auction told her story.”

“Zoll finally defaulted on her loans in April, and the bank seized her property in July. She is one of 18 people to default on condo loans totaling $11 million at Watercrest since the beginning of the year.”

“‘You think because I am a Realtor and an auctioneer I would know better, but we all make mistakes,’ Zoll wrote. ‘A week ago a bankruptcy auctioneer had an auction and sold a condominium 400 square feet bigger than mine for $322,000.00. It was a model and had all the bells and whistles.’”

“While some of these relative newcomers to the Sarasota-area auction scene are finding themselves in the doldrums, the same can’t be said for some veteran players in the market. For example, at least one longstanding local business, Venice-based Van De Ree Auction Co., is still holding events on a regular basis, and is moving the real estate going up on the block.”

“‘It’s a way to get market value, because right now no one really knows what market value is for many properties,’ said George Van De Ree. ‘I feel bad for the appraisers these days, because they’re trying to appraise properties without much in the way of comps, or any firm sense of what things are really worth in the market.’”

The New York Times. “Come to Fort Myers, population 60,000, the seat of Lee County. Walk the Gulf Coast beaches. Cruise the Caloosahatchee River. Witness what happens when banks dole out easy mortgages and homeowners forget that the money isn’t free.”

“Drive down McGregor Boulevard, or Cleveland Avenue, turn left or turn right, and see the empty houses, the overgrown lots, the signs saying AUCTION and FREE RENT.”

“Shayne Becher works for the code enforcement division’s rapid response team, which tries to keep up with an ever-growing list of abandoned properties needing to be mowed and boarded up.”

“The lawn mower cuts across the front-lawn jungle of an attractive house with great location and move-in potential. Abandoned, in other words. Three years ago, sold for $660,000; today, a ghostly parcel of failure.”

“He finishes mowing, takes a photograph of a job well done, and closes the chain-link fence as though the property were his own. ‘Another day in paradise,’ he says, standing on this street called Sunset.”

The News Press. “Three years ago, banks were throwing money at prospective no-money-down homeowners in Southwest Florida. Now prices have plummeted and banks aren’t as willing to take the risk: demanding hefty down payments as high as 20 percent and triple-checking credit histories and employment.”

“As would-be buyers are forced to sit on the sidelines, how can Lee County’s housing market with an inventory of about 15,000 homes expect to recover?”

“Getting more buyers into the market is key to a turnaround, said real estate agent Brett Ellis in Fort Myers. ‘I’m actually losing a lot of deals over financing, three in the last month.’ In some cases, he said, ‘These were deals already in place, pre-approved up front, and then underwriting standards changed.’”

“The number of foreclosures has exploded in Lee County recently, with 2,156 filed in August. That compares to 1,045 in August 2007 and only 146 in August 2006 when foreclosures were just starting to take off.”

The Orlando Sentinel. “Of Kevin Azzouz’s grand ambitions for MetroWest, none is bigger than his $700 million development called Veranda Park. It’s intended to be Orlando’s second downtown, a 30-acre agglomeration of condos, restaurants and a luxury hotel.”

“Azzouz blames his troubles on the gone-bust housing market and Wachovia Bank’s refusal to renegotiate a $52 million construction loan for a nearly completed 144-unit condo building.”

“Azzouz denies that he has cheated anyone and said he expects all the lawsuits will be dropped eventually. ‘Welcome to the ABCs of real-estate development,’ Azzouz said. ‘One problem can have a domino effect. But if I have a problem, I fix it. There’s no way this doesn’t survive.’”

“William C. Weaver, a forensic economist who teaches at the University of Central Florida, likens Azzouz’s situation to the classic developer’s ‘house of cards.’”

“‘If they get in over their heads financially, they may take money meant for one part of the project and use it for another,’ he said. ‘It’s like robbing Peter to pay Paul, and then robbing Paul to pay Mary, and on down the chain until they run out of money. They get into trouble if there’s not enough money, and then it’s not just one problem; it’s crash-and-burn time.’”

“A condominium-hotel project near SeaWorld Orlando has filed for Chapter 11 bankruptcy protection, more than a year after the project put all sales on hold.”

“Now the company says it has between 50 and 99 creditors, and something between $1 million and $10 million in liabilities. The petition, filed Sept. 12 in U.S. Bankruptcy Court in Orlando, did not include a list of the largest unsecured creditors, as required by the court.”

“According to a Web site for Sage Resort, units were being offered for prices ranging from $469,000 to $1.3 million. The company’s New York-based lawyer, Raymond Sussman could not say Monday how many buyers had invested in the unbuilt condo-hotel.”

The Naples News. “When Cape Coral resident Ronald Luczak pleaded guilty to fraud charges in federal court earlier this month, he was admitting to engineering a scheme to inflate home sales prices - enough to allow for the payment of kickbacks to his wife’s company. Luczak then had straw buyers take out 100 percent financing based on those inflated values.”

“Despite the nearly two-year-old case and Luczak’s recent guilty plea, home sales Luczak handled have been included in the database the Lee County property appraiser’s office uses to calculate assessed values for neighboring properties for taxing purposes.”

“Cindy Franklin, who works for the property appraiser’s office, confirmed two days after the plea that with that particular property - one on SW 40th Terrace - the 2005 sale was still listed as a ‘qualified’ sale. In other words, the property appraiser’s office had viewed the reported sales price of $610,000 as the property’s true value at the time.”

“The home has sold more recently for a mere $175,000.”

“There is a good chance that if you live in a neighborhood managed by an association, you are going to start feeling the pain if you already have not. The symptoms are 3-foot-high lawns, moldy walls and, increasingly, associations that lack the money to maintain the common grounds or pay the water bill, much less maintain abandoned homes.”

“‘People don’t realize how bad it is out there,’ said Tom Cook, who with his wife, own SRQ Property Management in Manatee County.”

“Few of the 16 associations that SRQ manages — encompassing about 1,100 units — have been immune. Besides former owners who have just disappeared, the associations are contending with banks that have taken possession of properties but will not pay the owed fees or fork over money needed to maintain the properties until they are resold.”

“In a real estate market where any sale is a prized event, most homeowner and condo association board members were reluctant to discuss the specifics of their problems with the Herald-Tribune, lest it scare potential buyers away.”

“But a recent survey of 500 associations throughout Florida by a group that deals with lawmakers to protect property values for the state’s community association residents, found a majority of boards are being swamped.”

“More than 60 percent said that banks and mortgage lenders holding title to homes or units are not paying regular fees or other assessments.”

“‘We’ve seen associations that have passed multiple assessments to cover the nonpayments,’ said Ken Arnold, the Hallandale-based Association Financial Services’s CEO. ‘It can run into hundreds or even thousands per unit.’”

“Arnold notes the domino effect that rising assessments can have on a neighborhood. ‘These families got a mortgage they knew they could pay and all of a sudden the guy next door stops paying and their assessments go up and up and up until they can’t afford to pay either,’ Arnold said. ‘It snowballs from there.’”

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