The Market Will Likely Overcorrect Before It Improves
The Gazette reports from Colorado. “An analysis by The Gazette of deposit, profit and loan data on local banks and credit unions - which doesn’t include banks outside the area…found that delinquent loans at local banks more than doubled from a year earlier. Loans that were 30-89 days delinquent more than tripled from a year ago. Most delinquent loans in local banks were made on real estate, either for home construction or development. Rising loan delinquencies are ‘a sign of the times’ and the inevitable result of weak local and national real estate markets, said Ed Sauer, president of The Bank at Broadmoor and chairman-elect of the Colorado Bankers Association. He expects delinquencies at local banks to continue growing in coming months.”
“‘Even though these numbers are up, it doesn’t mean that banks made bad loans,’ Sauer said.”
The Aspen Times from Colorado. “The two engines that superheated the economies of Aspen and western Colorado for most of this decade are getting chilled by the national economic meltdown, two experts said Friday. Second-home development has already tumbled and activity will continue to be slow for the foreseeable future, according to Jim Westkott, the senior demographer for the state of Colorado.”
“And the frenetic pace of drilling for natural gas in western Garfield County will likely level off because of the economy and infrastructure limitations, said Ben Alexander, associate director of a nonprofit research group.”
“Meanwhile, Garfield County has done little to diversify its economy, making it susceptible to a bust, according to Alexander. ‘A slowdown on the West Slope wouldn’t necessarily be a bad thing,’ he said. Westkott concurred. ‘This will bring things down to earth and in the long-term it’s probably a good thing,’ he said of the economic climate.”
The Aspen Daily News from Colorado. “Alexander warned that Garfield County’s gas boom days may begin waning soon. Natural gas prices hit a 13-month low on Thursday. The boom has brought housing pressures that has increased an already high cost of living, Headwaters Economics found. ‘For those folks who are working in the broader economy, which is most people, about 94 percent of the people, those folks are struggling to keep up,’ Alexander said.”
“‘I believe many of us have been working in the right direction, it turns out, of how to keep this county sustainable as we experience another boom and try to prepare for the ultimate bust,’ said Garfield County Commissioner Trési Houpt, who also serves on the Colorado Oil and Gas Conservation Commission.”
“‘We have to make sure we continue to appeal to the other economic interests that will make our economy sustainable after the bust,’ she said.”
The Arizona Daily Star. “When Tony Arellano bought property at the foot of the saguaro-dotted Tucson Mountains, he planned on building his dream house and moving his family there. That dream has been on hold for more than four years. The original developer for bankruptcy before putting in the roads and utilities needed to build on the property. That left buyers of the 18 lots, like Arellano, in limbo.”
“Arellano and the other buyers paid between $175,000 and $300,000 for each lot, said their attorney, Joane Hallinan. The 37-acre Enclaves at Gates Pass has 21 lots, and 18 of them have been sold. ‘I can’t believe this happened to us,’ Arellano said. ‘It was not just a piece of cheap land.’”
“Also, the real estate agent pressured buyers, Arellano said, telling them the lots were selling quickly and buyers would lose the opportunity to snap them up.”
The Arizona Republic. “The West Valley saw the area’s sharpest declines in home prices during the past year, with some properties losing more than 30 percent of their value, according to data analyzed by The Arizona Republic. El Mirage topped the list with an overall median home price decline of 32.5 percent, followed by Litchfield Park (28.2 percent), Youngtown (25.9 percent), Buckeye (24.5 percent) and Goodyear (23.7 percent).”
“No city has been hit harder than El Mirage. Of the 382 homes sold, 53 percent had been foreclosed on by mortgage lender. Earlier this week, Lesego Lidge raked up yard trimmings in front of her stucco home in El Mirage. Meanwhile, overgrown bushes claimed the front of what used to be her neighbor’s home. It has sat vacant nearly a year, a telltale ‘code enforcement’ notice plastered on the window.”
“Across the street, a ‘bank-owned’ sign looms in front of another house. Lidge and her husband bought their home in 2005, at the height of the Valley’s housing boom. She said she hopes the market stabilizes before her husband retires from the military next year and they consider moving.”
“Lidge said she harbors no delusions that prices will rebound enough to make a profit on the sale of their home. ‘I just don’t want to be upside-down,’ she said.”
“More than 30,000 Valley homes have been foreclosed on so far this year. That compares to fewer than 1,500 foreclosures in 2006. Now, almost all of the homes are going back to the lenders, which are reselling them for bargain prices. The Valley’s overall median resale price without factoring in foreclosures is $215,000. The overall median resale price of a foreclosed home is $149,000. That foreclosure median pulls down the overall median resale price to $180,000. At the height of the housing boom in 2006, the median was $267,000.”
“No one knows for sure just where the bottom is for the Valley’s home prices because the housing market is in uncharted territory. Never have home prices shot up 50 percent in a year as they did in 2005 or fallen 30 percent in a year as they have this year. During the Valley’s real-estate recession in 1990, home prices fell only about 5 percent.”
“But those home prices didn’t climb significantly for several years after that. Most people who bought homes during the peak in the mid-1980s didn’t break even on the value of their homes until the mid-1990s.”
“Analysts say the market will likely overcorrect before it improves. ‘Phoenix-area homes are more than halfway to where they are likely to fall,’ said Marshall Vest, an economist with the University of Arizona, who in early 2006 predicted housing prices would fall significantly even as they were continuing to climb then.”
“In this maturing real estate slump, median home prices in both Phoenix and Scottsdale fell by double-digit percentages this year for the first time since the local housing market peaked, according to the latest data. In Scottsdale, the overall median price dropped 16.2 percent, from $650,000 to $545,000. That’s compared with a decrease of 1.9 percent a year earlier.”
“As long as foreclosures continue to dominate the housing market, an increasing number of once-stable neighborhoods will see ever-sharper declines. Jim Belfiore, of Phoenix-based Belfiore Real Estate Consulting, said the same phenomenon has occurred in the East Valley, where desperate discounts offered by homebuilders in the starter-home mecca of northern Pinal County have affected home prices in Mesa and Gilbert.”
“‘Home builders in Queen Creek and Florence already drove a lot of East Valley infill prices down,’ he said. ‘They’ve affected these markets closer in.’”
The East Valley Tribune from Arizona. “An impressive array of major projects is on the drawing boards for the East Valley and Pinal County - ranging from the Gaylord Hotel/convention center in east Mesa to the $250 million Waveyard aquatic park in Mesa and the $600 million Coyote Canyon theme park in Florence to a forest of high-rise condos and hotels in Tempe and Scottsdale.”
“But how many of those visions will actually be built? The people who answer that question tend to line up in two groups. Those who are backing the projects say they will go forward. Just about everyone else is doubtful.”
“‘If you go over the history of large projects proposed in the Valley in the past 30 to 40 years, maybe a third get off the ground,’ said Bob Kammrath, a Phoenix real estate consultant. ‘The safe bet is there is no financing for those projects. If they have cash, those deals will happen. If the project has a creditworthy tenant, that is a done deal. But these others are quite speculative and dependent on people having a lot of disposable income. And that’s shrinking.’”
“Dennis Hoffman, an economics professor at Arizona State University, sees evidence of the development slowdown right outside his office window - the near-standstill on construction of the Centerpoint condominium towers in downtown Tempe. The project has been on a virtual hold since the bankruptcy filing of the Phoenix-based company that provided financing.”
“‘Anyone with financing in these projects who thinks it will be easy to lease space or find customers at those theme parks, the whole of Arizona, needs to recognize that this is not just a slow-growth economy,’ he said. ‘We are in a recession as deep as anything I’ve seen here.’”
The Deseret News from Utah. “One of Utah’s largest real estate brokerage firms closed its doors suddenly Friday, leaving many of its agents angry and unpaid. The downturn in the economy and its impact on the real estate business have been cited as the likely reasons for AllPro Realty Group Inc. going out of business, according to Ryan Kirkham, vice president of the Salt Lake Board of Realtors.”
“Kirkham said AllPro Realty principal broker Douglas Bates and broker agent Jeremy Lyman resigned from the Salt Lake Board recently, prompting suspicion that the company might be in trouble. ‘They were on our board of directors as one of the three largest real estate companies in Utah,’ Kirkham said. ‘When they resigned, we kind of knew this was happening.’”
The BYU Cougars from Utah. “Cougar House VIII, the most recent project in BYU Athletics’ partnership with the Utah Valley Home Builders Association, is now on sale substantially below its appraisal value. Located in Saratoga Springs, the 5,444 sq. ft. home is on the market at $389,900 — more than $155,000 below where this beautiful home appraised for the 2008 Utah Valley Parade of Homes..”
“‘With recent changes in the economy, the Cougar House is an incredible opportunity for anyone in the market,’ said Mitch McCuisition, chairman of Cougar House VIII. ‘This will be a half-million-dollar home when the market rebounds.’”
The Review Journal from Nevada. “The nation’s largest real estate auction company, will auction 80 condominium homes located at Monterey at the Las Vegas Country Club on Sunday. ‘This once-in-a-lifetime event is a great opportunity for buyers to gain ownership in one of Las Vegas’ premier communities,’ said Jeffrey Frieden, chief operating officer of REDC. ‘These luxury condos must be sold at rock-bottom auction prices.’”
“The Monterey condos that will be auctioned range up to 1,600 square feet and have been previously valued up to $539,900. Starting bids will begin as low as $49,000 with financing for qualified buyers as low as 3 percent down.”
“Southern Nevada’s housing market hasn’t found its bottom and could suffer further in coming months, a panel of real estate experts said. ‘The truth as I see it today is that the real estate market in Las Vegas is in the toilet,’ said Larry Murphy, president of SalesTraq. ‘And the sad probability is that it will stay in the toilet a while longer.’”
“Local builders put up many more homes than the market needed, Murphy said. Annual new-home deliveries peaked in 2005 at 38,000, even as Southern Nevada required just 25,000 new homes to meet consumer demand.”
“New-home construction isn’t the only housing indicator that continues to adjust. Housing prices spiked in 2004 and 2005, thanks in part to easy money flooding the market in the form of interest-only mortgages and no-documentation loans. ‘You could get a loan for a dead horse’ at the market’s pinnacle, Murphy said.”
“Some panelists said the city’s real estate professionals must adjust to a new normal. No longer can builders throw up the same floor plans year after year all over the valley and merely wait for buyers to materialize, said Tom McCormick, president of Astoria Homes. ‘During the boom, we all did the same things, and we all made the same money,’ he said. ‘During the bust, we all did the same things, and now we’re all getting creamed.’”
“Panelist Steve Bottfeld, executive VP of Marketing Solutions, went upbeat. ‘There’s never been a better time to buy in Las Vegas,’ Bottfeld said. ‘I’m not going to live to see a better time to buy.’”
In Business Las Vegas from Nevada. “The number of existing homes on the market with Realtors increased by 197 units to 22,543 in the past week. The number of owner-occupied homes declined modestly to 7,404, accounting for nearly 33 percent of all homes listed for sale, according to Applied Analysis. As of Oct. 13, the 13,087 vacant properties account for 58 percent. In mid-July, 11,595 vacant units accounted for 52 percent of the total.”
“Harvard economist Edward Glaeser used the Las Vegas housing market as an example when blogging the government should let housing prices keep falling rather than step in to stop the slide. Although many are arguing a new boom in housing prices would enrich banks and reduce the need for a bailout, the government shouldn’t try to inflate prices artificially by bailing out homeowners and taking steps to make borrowing cheaper.”
“‘The government just doesn’t have the tools to rewrite the laws of supply and demand,’ Glaeser says. ‘If the cost of building a home in Las Vegas is $150,000, and there are no restrictions on building, then all of the credit policies or bailouts in the world aren’t going to permanently keep prices above $150,000.’”
“The price decline, he says, should remind homeowners and buyers that housing should never be seen as a short-term speculation, but rather a place to live over the long run.”
The Lahontan Valley News from Nevada. “Housing Division administrators say Nevada must put together programs that leverage the $72 million the state will get from the federal Neighborhood Stabilization Program if that money is to have any real impact on the foreclosure crisis.”
“Lon DeWeese, chief financial officer for the division, said the plan is to find neighborhoods where there are a cluster of 15-20 homes in foreclosure owned by one financial institution and convince that financial institution to ‘take a haircut’ — lowering the value of those homes to current market value — so that the homes can be put back on the market at a realistic price. And that realistic price may be 30 percent below the amount they originally sold the house for.”
“Beyond that, he said, the federal rules for the program require they cut prices an average of 15 percent below current market value. For those reasons, he said, banks have been unwilling to drop the prices until now because, ‘that loss goes straight to the bank’s bottom line.’”
“He said with federal money flowing into those financial institutions and the market still falling, they may soon be much more willing to make a deal. ‘In high foreclosure areas, the downward spiral is accelerating,’ he said.”
The Pahrump Valley News from Nevada. “Pahrump residents of all ages are dismayed by the turmoil on Wall Street. ‘I lost 50 grand since this started,’ said John Melville, 65. ‘I’ve lost $4,000 in one day. This is the worst we’ve been in history and it’s not one person, it’s all the politicians. They should all be shot,’ Melville said angrily outside the Pahrump Bank of America.”
“He’s employed at a local recreational vehicle business. ‘I was planning on retiring soon. I don’t know what’s going to happen now,’ Melville said.”
“One elderly gentleman, Paul Campion, 73, said that, while the economy has ‘hit us pretty good’ and his ‘IRAs took a dump,’ people shouldn’t panic about their IRAs just yet, especially as anything under $100,000 or so is still protected. To deal with the economic downswing Campion, a retired real estate broker from California, has had to cut back on everything from trips to Vegas to even buying groceries.”
“‘I’m sick and tired of being manipulated,’ John Bundy said, citing as proof a statement on television the day before the $700 billion bailout bill was passed by Congress. Bundy said he watched a stock trader interviewed on CNBC commenting about what would happen if the bill failed to pass. Bundy quoted the trader saying, ‘Our people have that under control. We won’t let it get out of hand.’”
“Some Pahrump residents said they don’t have the luxury of a 401(k) retirement account. ‘I don’t have one. I wish I had that concern,’ said Jerry Winter, 44, who is self-employed.”
“Bruce Reeves, 72, said he’s retired and living solely off Social Security. ‘They’re all crooks from the president on down,’ Reeves said.”
