Speculators Are Deadly
The Gazette reports from Colorado. “Unlike just a year or two ago, if area consumers want to borrow money, they’d better have a steady income, a good credit score and some kind of down payment or equity. That’s the picture that emerged this week in interviews with a dozen bankers, businessmen and real estate agents. Financial experts said caution, among lenders and borrowers, isn’t a bad thing after a period in which common sense seemed to take a vacation. ‘We are such an instant-gratification society,’ said Don Childears, president of the Colorado Bankers Association. ‘That’s what led to this problem. We all wanted that neat home immediately, and the new car and furniture to go with it. We got addicted to credit. We lived that way. We’re basically paying a price for that.’”
“Soon-to-be homeowner Deb Hughes has decided she’s going to invest in what she still believes is a bright future, and she’s glad there are lenders willing to help her. ‘I’m 48. I’ve seen this happen before,’ Hughes said. ‘I lost a half million dollars in the stock market in 2000. The economy is in a slump right now, but we’re going to come back. The American people are powerful.’”
“Mortgage foreclosures filed in El Paso County this year passed last year’s record total Friday and likely will finish the year at least 25 percent higher if filings continue at the current rate, Public Trustee Thomas Mowle said Tuesday.”
“‘I believe a lot of the bad loans have been worked out of the system. What you are seeing now is people with reasonable loans are ending up in foreclosure because their economic situation has changed or they have to move for some reason and cannot sell their home on a timely basis,’ Mowle said.”
From 9 News in Colorado. “At Brothers Redevelopment Inc., the calls to its foreclosure helpline haven’t fallen off one bit. ‘From 2006 to 2007 we had this huge jump, 40 percent. The number jumped from about 28,000 filings in 2006 to 39,000 filings in ’07. I’m estimating we’ll probably see about 45,000 to 50,000 filings in 2008,’ said Ryan McMaken with the Division of Housing.”
The East Valley Tribune from Arizona. “Median home prices continued to slide in September while existing home sales continued a steady climb, according to the latest report on housing resales from Arizona State University. The median price of an existing house was $180,000 last month, about 7 percent lower than $193,550 the month before.”
“Patti Haugland, an agent with Sonoran Fine Properties, said the lower prices are a reflection that sanity is returning to the market after values were overinflated during the housing bubble. ‘People overpaid,’ she said. ‘People were getting crazy bidding against investors trying to snatch up these properties.’”
The Arizona Republic. “Foreclosures continue to pull down home prices. The median existing home was $254,000 a year earlier. ‘Potential buyers still confront a weak economy, possible job loss and tighter underwriting guidelines,’ said Jay Butler, director of realty studies. ‘The desire and ability to purchase a home is being severely tested.’”
“Estrella was a barely built master-planned community seized by the feds after developer Charles Keating went bust in the multibillion-dollar savings and loan scandal of the late ’80s. A new developer took over from the feds, acquiring the property for about 10 cents on the dollar.”
“‘We looked and we stood here and we said OK, how about this view for the rest of our life?’ said Charles Allen, recalling his visit with wife Josie to the lakeside home they bought in 1992. Josie Allen and Charles retired from their jobs in California and moved to Estrella. And then they hung on through a slow housing market in the mid-’90’s.”
“Prices of lakeside homes that sold for $134,000 in the early ’90s finally boomed. And then came the current bust. ‘This house was appraised at $620,000,’ Charles Allen said. ‘Now we’re lucky if we get 400.’”
The Daily Herald from Utah. “An auction that netted $7.5 million in bids on 56 distressed Utah properties fell through last week after the owners — three banks and two private lenders — decided they may get a better deal by holding out for the government’s bailout plan. ‘There were buyers, but we couldn’t sell the homes because free enterprise has gone out of the market,’ said Eric Nelson, founder of Las Vegas-based Eric Nelson Auctioneering.”
“All those bids were rejected late last week, a move Eric Nelson Auctioneering’s founder blames on ‘indecision’ among lenders caused by the government’s proposed bailout plan. ‘This has never happened before. In the 25 years we’ve conducted lender-owned auctions, we’ve consistently closed over 95 percent of all high bids,’ Nelson said.”
“‘They’re thinking, ‘Why sell the properties for 50 cents on the dollar when they may get 75 cents or 80 cents through the bailout? If buyers aren’t allowed to buy, that delays the process even more,’ Nelson said. ‘That’s not a good thing to have when you’re trying to get the economy back on track. It’s disheartening for buyers and sellers and it has a real economic impact with thousands and thousands of homes coming on the market.’”
“Kelly Matthews, senior economist with Wells Fargo, said he doesn’t believe there’s any ‘clear-cut evidence or serious discussions over whether the government will buy those foreclosed properties.’ ‘The initial proposal is that the government may buy mortgage-backed securities which could possibly include properties that were already foreclosed on,’ Matthews said. ‘But I don’t believe there’s any clear-cut evidence or defined program that the [U.S.] Treasury is going to buy those foreclosed homes.’”
“Steve Cuillard in Orem, a broker specializing in foreclosure sales, said he hasn’t received any indications that the lenders he works with are holding off on sales on expectations of a government bailout.”
“If anything, he said foreclosure sales are slow because it’s increasingly harder for people to get financing for a variety of reasons. ‘More lenders are now requiring 10 percent to 20 percent down payment, instead of 3 to 5 percent. I’ve had two potential buyers bail out on me this week because one of them had to take a pay cut, and another one was told his employer was cutting back,’ he said.”
The Salt Lake Tribune from Utah. “Utah’s job-creation engine has all but shut down, prompting worries about how long the state’s comparatively strong economy can stave off significant employment losses. One person who is watching his money these days is Russ Johnson, who owns a homebuilding company in Farmington and also manages a mortgage lending office in Bountiful. Business at both enterprises is down dramatically.”
“He thinks a growing problem is that people who have the means and financing to buy are putting off purchases because they are waiting for the market to hit bottom. He recently had a woman offer him $500,000 for a house that cost him more than $1 million to build. He passed.”
“‘I don’t know what they are waiting for,’ he said. ‘I guess they are waiting for a million-dollar home to be a $1 before they buy.’”
The Deseret News from Utah. “Foreclosures have skyrocketed in Utah in recent months. Jim Wood, director of the University of Utah’s Bureau of Business and Economic Research, said Utah’s foreclosure rate of about 1.5 percent is not on the scale of other troubled states across the nation, but the Utah rate could hit 3 percent over the next year. He characterized the current financial markets and housing situation as ‘chaos’ of historic proportions.”
“‘We’ve never seen anything like this,’ he said. ‘This is really unprecedented.’”
“‘I’ve never seen this many short sales, and I’ve been doing them for 11 years,’ said Mindy Mason, a Realtor with Prudential Utah Real Estate. Mason said in years past, banks would often accept the loss on a property and forgive the deficiency from the seller, but times have changed. ‘A lot of banks are requiring that the deficiency be paid over time or at least a portion of it be paid,’ she said. ‘They used to forgive, but there’s just so much of it.’”
“Mason said a ‘huge amount’ of investor speculation, subprime lending and home construction contributed to the dramatic inflation of home prices and put many buyers in homes they eventually were unable to afford when the market turned downward. She said those factors put a significant number of property owners in financial peril, so much so that today, about half her business involves short sales.”
“Eric, who asked that his last name not be disclosed, found himself unable to afford his home and ended up turning to a short sale. He and his wife purchased a new home in Orem in 2005 and lived there for three years before separating. ‘I couldn’t afford the payments on my own,’ he said.”
“The couple bought the house for $480,000, and it jumped in value just two years later. He refinanced the home after it was appraised for $619,000 to finish the basement.”
“He said he chose the short-sale option rather than allowing the house to go into foreclosure because the long-term impact on his credit would have been much worse with a foreclosure. He eventually sold the house for the original purchase price in February of this year, although the mortgage was for the higher, refinanced amount. ‘The note on it was $619,000, and then it sold for $480,000,’ he said.”
The Reno Gazette Journal from Nevada. “The solid majority of Nevadans in a Reno Gazette-Journal poll…are worried about how the economic downturn affects them. California retiree Gary Ferguson, walking his 18-month-old granddaughter with his wife, Joanna, during a Reno visit, sought perspective. ‘We’ve been here before with periods of downturn,’ he said. ‘What can you do? There’s a greed factor in all this. It was a matter of time. It was bound to happen, and God willing, everything will bottom out and we’ll start all over again.’”
“Added his wife: ‘If our Social Security checks don’t come, we’ll be in trouble.’”
Las Vegas Now from Nevada. “Home values in Nevada have plunged, while foreclosures have skyrocketed. But in a sign of what could be a turnaround for the market, homes in foreclosure are being sold at record levels. Jessica Scheitler is still getting settled into her new home. Scheitler was renting and suddenly got forced out when her landlord went into foreclosure, ‘Someone came and knocked on the door and asked if we were showing the house, and that’s kind of how we found out that we had to leave.’”
“Realtor Nick Nolf helped her find a hot deal in the foreclosure market. The two-year-old home went for $370,000 in 2006. Last month, someone else’s misfortune got Scheitler an unbelievable deal, ”I paid $180,000 for the house and the seller contributed the closing costs.’”
“The Las Vegas valley now has more than 5,000 foreclosed properties on the market, and they are going first at bargain prices. So, has the market finally hit the bottom? ‘You never know the bottom of the market the day the bottom hits. You’ll find out maybe three to six months down the line when the actual bottom was. You’ll be able to look back and say, ‘Oh, that’s where the bottom was,’ said Nolf.”
The Review Journal from Nevada. “Foreclosures have nearly tripled in Clark County through September, and the number coming down the pike is growing. Las Vegas will probably see a slowdown in defaults and foreclosures in the short term with the introduction of new government bailout programs, Steve Hawks of ReMax Platinum said.”
“But a large percentage of original loans were done without income verification. If the homeowner cannot qualify for one of these programs, they’re probably ‘dead in the water,’ he said.”
“‘One thing is certain, the people buying now at 50 percent less than their neighbors is obviously going to cause more foreclosures, short sales or writedowns as current homeowners upside down by 50 percent see the time and cost of recovery as just too far off,’ Hawks said.”
“Tim Kelly, REO specialist for Brodkin Group, said thousands of real-estate owned properties are coming down the pipeline as some 250 notices of default are filed daily in Clark County. ‘It will be kind of like a small avalanche,’ he said.”
In Business Las Vegas from Nevada. “In Las Vegas…new-home sales in July (731) and August (792) were the weakest of the year. September is likely to be even worse because of the meltdown on Wall Street and tight lending standards. Through the end of August, new-home closings were down 49 percent compared with the first eight months of 2007. ‘All you have to do is look at the numbers, and you can see the (stimulus) has not helped the housing market,’ said Steve Bottfeld, executive VP of Marketing Solutions. ‘It didn’t have a huge impact. The tax credit can’t get you a mortgage, and that is the key issue on whether you can buy a home.’”
“Bottfeld, one of the biggest cheerleaders for the housing market, says he remains concerned about where the market is heading because he thought prices would start rising by the fourth quarter and first quarter of 2009. ‘Until prices go up, we are still going to be in a recession,’ Bottfeld says.”
“What the bailout won’t do, is address the long-term concerns of what triggered the need for the bailout in the first place, Bottfeld says. Housing needs to go back to being treated as shelter rather than a commodity, he says. ‘This bill is not doing that,’ Bottfeld says. ‘I love investors to death. They were 20 percent of the Las Vegas market up through the boom, but speculators are deadly because they don’t give a damn about the neighborhood. All they care about is turning a profit fast.’”
“Applied Analysis reported the number of resale homes on the MLS jumped by more than 359 units and was the largest weekly increase since May 2007. The number of vacant properties has also increased by nearly 400 during the past week. The number of owner-occupied homes declined by 50 to 7,568 and represents 34 percent of all homes listed for sale, the firm reports. Tenant-occupied units represent 9.5 percent of the total while vacant properties account for 57 percent.”
The Las Vegas Sun from Nevada. “Nevada’s largest condo-hotel project, the Trump International Hotel & Tower, has faced the full force of the housing slump as banks curtail mortgage lending. About 280, or 22 percent, of the tower’s 1,282 units have closed escrow as of a week ago, according to the Clark County assessor. About 62 units have closed since July 1.”
“Management has taken back a few hundred units, mostly from speculators and others with little chance of closing, and is renting those to the public, along with the others that have closed. Some have the cash to close but are waiting for the economy to rebound, said Jack Wishna, who owns a stake in the tower with developers Donald Trump and Phil Ruffin. They can take their time because neither banks nor management is forcing them to close.”
“Though that sounds like good news, many observers question the viability of a building that has been mostly vacant since it opened in March.”
“Potential buyers are struggling to secure mortgages at two major condominum-hotels as credit has tightened, even for the well-to-do. ‘I’ve never seen anything like it,’ New York billionaire developer Donald Trump said. ‘Historically, the banks will call me and beg for end loans. But they don’t do that any more because the banks are really out of business.’”
“Brock Davis said prospective condo-hotel buyers are now facing lenders who want as much as 50 percent down and require borrowers to have exceptional credit. The buyer must be willing to take adjustable-rate mortgages to obtain lower rates. ‘The rules have changed on qualifying,’ said Davis, who has been involved in the area’s mortgage industry for 30 years. ‘The still have to qualify better than normal on income, on credit and showing where your down payment is coming from.’”
“Rates on 30-year fixed-rate mortgages for banks willing to loan on condo-hotel purchases are as high as 8 percent to 9 percent, according to the latest data Davis had seen. ‘There’s just not the financing available at the interest rate or small down payments there was two years ago,’ Davis said. ‘That’s the problem.’”
“No one seems to know how the struggles of current buyers will carry over to a new series of condo-hotels coming on line in the next few years. Approximately 2,700 condo units at MGM Mirage’s CityCenter are scheduled to begin closing in September. The Cosmopolitan, which has deposits on 1,825 of 2,184 condo units available, said market conditions should improve by the time their buyers begin applying for mortgages in the second quarter of 2010.”
“Two other projects under construction, Fontainebleau, with 1,018 condo-hotel units, and the 398-unit St. Regis Residence at The Venetian Palazzo, have not begun selling their units.”
“A few potential buyers have had to walk away from their nonrefundable 20 percent deposits, Trump said. Some of the buyers have had to pay cash, Trump admitted, saying ‘the country is in a sad state.’ ‘People are having a hard time all over the country getting financing,’ Trump said. “It’s very sad for the people. There is no bank that gives them money.’”
