The Housing Bubble

It’s Friday desk clearing time for this blogger. “It has a been several years, and several real estate transactions, since Kianoush Etemadi, 57, and her daughter, Paris, 16, had a home of their own. Etemadi owned a house in Rockville, Md., until 2005, but sold it after deciding she could save money by moving into the Bethesda home of her younger sister, Azar. In 2006, with the Bethesda real estate market booming, the sisters decided to put an addition on that house, for which Azar took out a $200,000 loan; during construction, the three would live nearby in yet another house, which Etemadi bought the same year, planning to flip it, for $505,000 with no money down.”

“By 2007, however, the sisters were overextended and the market had slowed. They did not make payments for three months on Azar’s mortgage and the bank started threatening foreclosure. Kianoush, who had been struggling to keep up with the $4,700 mortgage payments for the new, temporary house, now had to begin helping her sister with her payments — especially after Azar was laid off from her job. Kianoush began working as a real estate agent. They tried for six months to sell either house, but couldn’t get even a single offer. In August, the family moved back to Azar’s house, and Kianoush focused on saving it from foreclosure. ‘I used my savings, I got help from friends, I sold all my jewelry,’ she said.”

‘Meanwhile, she stopped making payments on the house she had planned to flip, and soon received a notice of impending foreclosure from her mortgage lender. Now, she and her daughter live not only with Azar, but with three roommates that they took in to cover costs. The close quarters are particularly hard on Paris, who likes to have friends over. ‘When I remind her that somebody is sleeping in the other room or in the basement, she gets upset,’ Kianoush Etemadi said. ‘She says, This is my house! This is our house! Why shouldn’t I have fun on Friday night?’”

“Towns such as Sherborn and Concord are seeing large percentages of homes for sale being marked down, according to a new survey. The same is true for some of the hottest Boston neighborhoods in recent years, such as the South End, Charlestown, and Beacon Hill. In the current market, only sellers who have to sell, because of a job shift or change in personal circumstances, are putting their homes on the market, said Boston broker David Crowley.”

“‘The people selling now really have to sell,’ Crowley said. ‘It’s definitely different from a few years ago when people would put their house on the market and see what happens.’”

“Dr. Karyn Stern and her husband are looking in Concord. They’ve seen many homes that have been reduced in price, commonly to the $900,000s from more than $1 million. But in her view, those prices are still too high for some of the homes they have seen, many of which need extensive work and updates.”

“‘For $900,000 you are getting a little, tiny house that would be $200,000 anywhere else in the country,’ she said.”

“Timing often is the essential ingredient in any project, and Realtors and developers believe the timing is perfect to capitalize upon Toledo Bend Reservoir’s quietly growing popularity. A tall ridge with full lake view has been identified as a spot for a clubhouse and condominiums. Membership at Cypress Bend is being studied as part of the selling price of the lots. Waterfront lots will sell in the ’six figures,’ with prices yet to be determined. A waiting list for pre-sales is growing.”

“‘The interior and waterfront lots have gorgeous views. You can see Texas from most of the lots. And it’s just 10 minutes from Toledo Town, banks, groceries and restaurants,’ said Partner Virginia Burkett.”

“Springfield’s housing market has remained largely unaffected by market turbulence and could be heading for an upturn once the national market stabilizes, area Realtors say. ‘We’re not on the coast — we’re not Florida, we’re not California — where most of these speculative buys were,’ said Art Maxwell, sales manager of Coldwell-Banker Vanguard. ‘A lot of these speculative buys were secondary houses, not the buyer’s primary home. They were investment properties. And like most other investments, when it goes bad you dump it.’”

“‘People are hearing all of the national media saying it’s just desolate — that you can’t sell a house, you can’t give it away — and that’s just not true,’ said Murney Associates Realtor Rhonda Burks.”

“‘When homeowners must move out of a home…a growing number are choosing to rent [their home for sale] rather than continue reducing the price of the property until it sells,’ said Jim Merrion, regional director of the RE/MAX network in northern Illinois. ‘It is not a risk-free strategy. But if a seller thinks it is likely that home prices will rebound in the next year or two, it can be an effective way to deal with a difficult situation even if the monthly costs of continued ownership [mortgage, taxes and insurance] are more than the rent received.’”

“For example, assume a home purchased three years ago for $460,000 has a current market value of $410,000, and the homeowner’s monthly cost is $3,300. If the home can command just $2,200 a month in rent, the owner would have to pay $26,400 out of his or her own pocket over a 24-month rental period. However, if the homeowner believes the market will rebound so that the home will be worth at least $440,000 in two years, the out-of-pocket costs of renting can be recaptured when the home is sold.”

“Looking to offset rising expenses and otherwise cope with dreary economic times, those opening their homes to renters find in the process assistance in paying down a mortgage or keeping plusher lifestyles tenable, even if it means settling for a more cramped, less private existence.”

“‘It stands to reason that in an economic downturn you would see people resorting to a variety of strategies to try and make ends meet and sustain their lifestyles,’ said Michael Bernstein, provost at Tulane University, where he is also a professor of history and economics.”

“Bernstein said house sharing is commonplace in other parts of the country, where skyrocketing housing markets have long made such arrangements attractive. A former San Diego resident, Bernstein recalled residential sections of Southern California where he said it is not remarkable to find six cars in the driveway of a single-family home.”

“‘I would assume that if you look at any period of economic stress, you will see reconfiguration of living patterns along this way,’ he said.”

“The annual real estate forecast season is on, and Sacramento-area home builders caught a fresh earful of unfriendly predictions Thursday. Folsom building industry tracker Greg Paquin had these predictions: New home prices – averaging $374,000 across the region – are about as low as they can go. He said, ‘We feel we’re getting real close to the bottom in the Sacramento market.’”

“Economist Edward Leamer, director of the UCLA Anderson Forecast, said he sees not a typical V-shaped fast rebound this time, but a long bottom. ‘The news is all fear, fear fear. I call it the Paulson Panic,’ he said, criticizing the U.S. Treasury Secretary Henry Paulson, President Bush and Federal Reserve Chairman Ben Bernanke for badly frightening consumers with talk of economic collapse.”

“‘Business is booming,’ said Tabach-Bank, the CEO of Beverly Loan Co. in Beverly Hills, California. Beverly Loan is a pawnshop…that caters to people who hock Cartiers, Harley- Davidsons and Oscar statuettes when they need cash. They really need it now, Tabach-Bank said from a third-floor office, protected by bulletproof glass, off his showroom in the Bank of America building near Rodeo Drive.”

“‘I’ve never seen so many bankers, lawyers, doctors and actors’ with valuable things to pawn, he said. He pointed to an 18-carat white gold bracelet with 69 diamonds ($2,900) and an 18-carat yellow gold Rolex Yachtmaster II (’a steal’ at $18,500).”

“In downtown Los Angeles, King’s Jewelry & Loan began seeing luxury business pick up about 18 months ago when variable-rate mortgages started resetting to higher payments, said owner Sam Shocket. ‘We were seeing more Rolexes, Patek-Philippe watches, larger diamonds,’ said Shocket. ‘Instead of construction workers, we’d see major contractors,” Shocket said of his customers. ‘Instead of real estate agents, we’d see brokers. Instead of actors who played bit parts, we’d see someone you might recognize from ‘The Tonight Show.’”

“Delaware native Bill Parks opens Fox TV’s hit ‘Bones.’ Parks’ other recent big undertaking was buying a house in Los Angeles. It’s a three-bedroom, two-bath house with a guest house. He lives in the guest house and rents out the bigger house to cover the mortgage. ‘It was scary,’ he says. ‘But it was worth it.’”

“Now, he has not only his own house but, parked in the yard, a bus that’s temporarily home to ‘a couple of punk rock hippies.’ ‘I have this 45-foot, 72-passenger school bus. … It’s painted black all over, and it has a skull painted on one side. They’re waiting to convert it to biodiesel before they venture onto the road to finish their film, play music and do some tattoos.’”

“LibertyBank has sued the developer of the former Bend Trap Club property for more than $13 million, most of which was for loans made in April 2006 to purchase and develop the property. The former trap club property in southeast Bend had been approved for 220 homes, Bauhofer said. ‘By the time (the site) was completed (for homes), the market had collapsed,’ said (shareholder) Don Bauhofer. ‘There was a lot of development out there and a lot of us were building to precede sales. The value of the land dropped and the developers who were leveraged were not in the position to carry it.’”

“The median price of King County single-family homes sold in October was $392,000, down nearly 12 percent from October 2007, the listing service said. It was the largest percentage drop, year-over-year, since the market turned south two summers ago. Prices in King County haven’t dipped below $400,000 since February 2006.”

“With few exceptions, only those who absolutely must make a move now are in the market, said Kim Horn of the Horn Real Estate Group in Snoqualmie. ‘I’m working with eight sellers right now,’ Horn said, ‘None of them are selling because they want to.’”

“Falling home values have left nearly 52,000 mortgages in Minnesota in a negative-equity position, meaning the homeowner’s debt is greater than the estimated value of the property About 12 percent of the state’s mortgaged properties are ‘underwater.’”

“Walking away from a mortgage is an extreme response to being underwater that few homeowners likely would take, said said Tim Bendel, past president of the Minnesota Mortgage Association. ‘Psychologically, if you’re in a lot of financial trouble, and your house isn’t worth what you owe on it, you might feel like ‘Why should I go out of my way to make this work?’ said Bendel, who is president of a mortgage brokerage company in Prior Lake. ‘Hopefully, most won’t do that, because I think housing’s best days are still in front of it.’”

“Even though Arizona’s real estate recession feels painful today, it’s no worse than previous downturns. And the state will probably pull out of this one in the same ways it has done in the past, said Bill Gosnell, a Phoenix-based real estate investor, at a presentation Thursday night.”

“‘We are one of the top five overbuilt residential markets, which means we are becoming incredibly affordable again,’ he said. ‘We are also substantially overbuilt in office and industrial, and we are reaching similar vacancy rates as in the late 1980s. What brought us back in the 1990s was the cost of living came down because of housing, and the cost of doing business came down because of the vacancies.’”

“The same trends could help the Valley recover from its current malaise, he said. “I don’t want to sound overly optimistic. … It’s unfortunate for people who lost their houses. But the bottom line is that it is creating opportunities for others to buy these houses.’”

The Palm Beach Post reports from Florida. “In the past four decades, the Altman Cos. has profitably built thousands of apartments throughout the eastern half of the country. The developer’s foray into South Florida condos didn’t work out so well, however, and Boca Raton-based Altman Cos. has decided to go back to its roots as an apartment developer. Altman is trying to unload units at the Astor, where all 90 units were presold but half of buyers failed to close, and at the Harborage, where 49 of the 126 units are for sale.”

“At the Astor, it has cut prices that ranged from $300,000 to $700,000 during the boom to between $200,000 and $500,000 now. And today’s buyers get $20,000 in free upgrades, President Jeff Roberts said. At the Harborage, prices have plunged from $300,000 to $700,000 during the boom to a range of less than $200,000 to less than $500,000 now, Roberts said.”

“Mortgage broker Jennifer Bellis closed in April on a $360,000 unit at the Astor Condominium in Delray Beach’s Pineapple Park neighborhood, even though she realized its value had fallen. ‘Ultimately it will be fine,’ Bellis said. ‘I’ll just have to wait for a few years to get my money back.’”

“With the financial markets in turmoil and home prices continuing their descent to unknown depths, more and more home buyers are desperately looking for ways out of pre-construction contracts on new homes. Juno Beach lawyer Gary Nagle is handling a number of…lawsuits, just as he has for many other buyers of new condo projects throughout Palm Beach County.”

“Nagle said buyers are highly motivated to get of their deals any way they can. The condo units have lost so much value since pre-construction contracts were signed a couple of years ago that, in some cases, the lost value is much greater than the 20 percent deposit the buyers handed over as down payments.”

“‘It doesn’t take a math genius to figure out that you lose less money by not closing and just losing your deposit,’ Nagle said.”

“Meanwhile, the developer of a Davie housing community says its own lawyers are to blame for home buyers bailing on their pre-construction contracts. Here’s the alleged mistake: One part of the pre-construction contract requires only an estimated timetable for the homes’ completion.”

“Unfortunately, another part of the contract contains a two-year completion date from the date of the contract, the lawsuit says. That paragraph also contains a provision that nullifies the contract and requires the return of buyers’ deposits if the developer misses the two-year deadline, the lawsuit says. Some of the homes weren’t finished in the two-year window. And so because of the conflicting provisions, the developer has had to return buyers’ deposits, leaving Lakeside Village stuck with unsold property at quite possibly the worst ever period in the housing market.”

“‘They have to carry these properties now,’ said Lakeside’s attorney, Howard DuBosar of Boca Raton. ‘It’s devastating.’”

From CNN Money. “The housing crisis is driving unemployment, which in turn has exacerbated the housing crisis - particularly in bubble states like Florida, Nevada and Arizona. Jacksonville, Fla., resident Paula Seabrooks lost her mortgage brokerage company this year. She has worked in the industry since 2001, first as a contract underwriter for companies such as Wells Fargo. She then opened her own business. Her income dropped from nearly six figures in 2006 to less than $20,000 last year.”

“Seabrooks bought a $165,000 home in March 2006 and financed it with a hybrid adjustable-rate mortgage, which recently reset to 8.375% interest. ‘I thought I’d be doing well,’ she said, ‘I took the low rate, intending to refinance within two years.’”

“Seabrooks has a new job, but it pays only $38,000 a year. That is not nearly enough to afford her $1,400 monthly mortgage bill, much less make up the five months of missed payments and fees that now total about $11,000. She’s seeking a loan modification. Ironically, her new job involves handling applications from people seeking to refinance their own unaffordable mortgages into FHA-insured loans.”

“‘Every other loan application I get, it seems, either the wife or the husband is unemployed,’ Seabrooks said.”

The Sun Sentinel. “Coral Springs city commissioners have rejected the idea of the city entering the housing business. Instead, the city will use a $3,378,142 grant from the U.S. Department of Housing and Urban Development…for down payment assistance and repairs of about 50 to 60 homes that are currently owned by banks.”

“The focus of the program will be on foreclosed properties in the 33065 zip code area. ‘There is foreclosure activity happening all over the city,’ Assistant City Manager Erdal Donmez said. “There are 485 homes owned by banks in the city, while there are another 462 going through the final stages of foreclosure. The largest concentration of such homes is in the zip code 33065 area.’”

“The arrangement with CRA helps the city ‘accomplish more with less risk,’ City Manager Mike Levinson said. ‘The funds won’t be used for cleaning up foreclosed homes. The neighborhood stabilization program goes hand in hand with the foreclosure prevention program that we have implemented. We are doing the proactive stuff.’”

The News Press. “A proposed four-story condominium-hotel and its four-level parking garage on Fort Myers Beach are being met with caution by neighbors who worry the project could do more harm than good. The developers want to add the condo-hotel, which would have about 125 rooms, a parking garage that would hold at least 234 cars, a three-level marine building and retail space, according to plans filed by the developers.”

“John Gardner, who lives on Third Street…said about 25 residents of Third Street are worried the tall parking garage and condo-hotel will block their bay views and bring down their property values. ‘People whose houses appraised three years ago for $550,000 are not going to be appraised the same way when you have a parking garage next to it, and we’re concerned about that,’ Gardner said. ‘These are people’s retirement homes, that’s where they’ve placed most of their money.’”

The Petoskey Review. “Petoskey residents and visitors have long been subject to gazing at the hole at the entrance to the downtown corridor and wondering what went wrong? Lake Street Petoskey Associates development partner David Jankowski, of Grosse Pointe Shores, told city council members earlier this week that a new lender recently committed to the project, and that work at the Petoskey Pointe site — which stalled last year after previous financing was lost — likely will resume soon.”

“At one of the entrances into St. Pete Beach, a popular tourist destination in Florida, Jankowski is at the center of another dormant construction project. Corey Landings was to be another mixed used project like Petoskey Pointe. It too originally included condominiums, hotel and retail space. But when the housing market turned, the project was amended to become a hotel with retail space and a marina instead.”

“But similar to the hole in downtown Petoskey, the development site for Corey Landings is bare, years after the city approved the project. However, St. Pete Beach city manager, Mike Bonfield, said that there are a number of sites like that throughout the city and he said it is mostly the fault of a poor market. While the property was scheduled for foreclosure earlier this year, little has happened.’

“Bonfield said that he has also been told more than once that Jankowski was near to securing financing for that project but it has yet to materialize. ‘It appears they got into something that was over their head financially,’ he said. ‘Now they’re scrambling.’”

The Herald Tribune. “Four years ago, the County Commission and SBC Development negotiated an agreement for a 258-condo high-rise on Sarasota Bay — the first phase of a potential 1,658-home community called Long Bar Pointe. But because of the decline in the real estate market, not a single condo has been built or sold. The parkway extension that the commissioners thought SBC would have completed by the end of this year also has not been built because the money for it was to come from the condo sales.”

“On Nov. 18, the commission intends to amend the agreement to push back SBC’s deadline for the two-lane parkway to July 2019. ‘He’s put a lot of money out at our request,’ Commissioner Ron Getman said of SBC developer Larry Lieberman. ‘It’s an issue of fairness.’”

The News Journal. “The Volusia Home Builders Association — whose customers have been socked by more than $66 million in school impact fees over the past six years — filed suit this week seeking to have the practice declared unconstitutional. Impact fees are charged for every new home that’s built. In theory, new construction adds to the burden of educating additional students in Volusia County public schools.”

“But in reality, the school district has lost enrollment each of the last two years. About 2,400 fewer students attend this year than in 2006.”

“‘There is no need for the impact fee if new homes are not creating new students,’ said Stan Janzen, president of the association and Woodmark Construction Inc., Ormond Beach.”

The Orlando Sentinel. “Dead Winter Park developer Steve Walsh owes banks and investors $255 million, his creditors claim, but the lawyer for Walsh’s estate says they likely will never see a penny of it. Charles Stark, Walsh’s attorney, said the estate is worth less than $6 million, however, and that the Internal Revenue Service will take most of it. The claims that have piled up in probate court, Stark said, ‘may just be a waste of paper.’”

“Walsh shot himself in the chest behind his home June 25. As owner and managing partner of Broad Street Partners, he was one of the most prominent real-estate developers in Central Florida. In 2007, before the construction market crumbled, his company had projects in the works valued at nearly $1 billion. One of them, the high-rise Tradition Towers, would have built two 39-story condominium buildings on the site of the University Club in Orlando.”

“He was working on The Residences at Ravina, a $125 million condo development in downtown Maitland, and his company was one of the partners in The Carlisle, the four-story luxury condo proposed for downtown Winter Park that the city ultimately rejected.”

“Walsh’s good-guy profile, though, changed dramatically shortly after his death. One of his biggest investors, J. Steven Schrimsher, quickly filed a series of lawsuits, accusing Walsh of embezzling more than $20 million. According to the company’s pleading, Walsh would shift money without authorization from a partnership account set up for a specific development…and move it to his own business account, where he spent it.”

“Schrimsher also is fighting to get control of Walsh’s three homes: a $1.4 million house in Winter Park; a $2.6 million, 16-acre estate in Highlands, N.C.; and an $800,000 home in Charleston, S.C., owned by a company that Walsh served as registered agent.”

“‘We have financial evidence that the money was, indeed, converted. That we can confirm,’ said Schrimsher attorney Carla DeLoach Bryant. ‘Now, where it all went is part of an ongoing investigation.’”

The Bradenton Herald. “Philip Coon entered a Tampa federal courtroom on Wednesday to accept his responsibility for helping to bring about the collapse of Bradenton-based Coast Bank. Dressed in a gray suit and tie, the heavy-set, silver-haired man entered a guilty plea before federal Magistrate Judge Mark A. Pizzo for his part in skimming hundreds of thousands of dollars off the tops of loans he issued through Coast Bank via an aggressive lending program.’

“The plea agreement Coon signed beforehand with prosecutors acknowledged that he schemed with another individual — John Robert Miller, the president of American Mortgage Link — to add an extra percentage point to home loans financed by defunct Coast Bank and then split the proceeds. With those proceeds, Coon bought things like a $21,000 grand piano, nearly $40,000 worth of jewelry and a home for his brother-in-law, according to the plea agreement.”

“‘Did you conspire with another to defraud Coast in the exercise of a scheme for providing, essentially, a kickback for providing mortgages?’ the judge asked Coon prior to accepting his guilty plea. ‘Yes sir,’ Coon replied.”

“Coon had been the head of construction loans at Coast Bank and was known as a high producer. Many of the loans he issued were for homes being constructed by a builder who eventually claimed bankruptcy. Coon used Miller’s mortgage company to funnel the kickbacks into the account of a shell company. Miller has pleaded guilty to his part in the crime and will be sentenced in January.”

“Coast Bank ended up with $110 million in loans to 482 borrowers, many of whom held mortgages on homes that weren’t completed or never started. Shareholders of Coast Bank’s holding company had lost millions by the time they sold to First Bank at a fire sale price.”

“Philip W. Coon sat down Wednesday in federal court, adjusted his tie, put on his glasses, took a hit of breath spray and was ready to begin serving time. Coon, the former executive vice president at Coast Bank in Bradenton, wanted to plead guilty to conspiracy to commit wire fraud and money laundering and start his sentence right away.”

“But he needed a deal — if he found county jail too rough, he could post bond to get out and await his assignment to a less-oppressive federal prison. Magistrate Mark A. Pizzo demurred. He would let Coon enter county jail to begin marking time, but the former banker could not seek release if he did not like the conditions.”

“Coast executives fired him in February 2007 after he refused to cooperate with the bank’s investigation into the loan scam. The bank also fired Melissa Coon, his wife, who was head of retail lending. Coon will lose his Bradenton home, a second house, brokerage accounts, jewelry and other items to pay $1.5 million under the plea agreement. Miller, who pleaded guilty earlier, must pay a similar amount.”

“The judge suggested that Coon listen to his attorney, James E. Felman, who wanted his client to wait until formal sentencing to a federal prison. ‘I’ll take my attorney’s advice,’ said Coon, who had brought along a change of clothes in a bag emblazoned — perhaps appropriately — with the logo of broken mortgage giant Fannie Mae.”

“As for Coon’s attempt to immediately start his sentence, it was a new one for his lawyer. ‘I’ve never seen it before,’ Felman said after the hearing.”

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