The Housing Bubble

The New York Times reports on California. “Because of plunging home values, almost 90 percent of homeowners here owe more on their mortgages than their houses are worth, according to figures released Monday. That is the highest percentage in the country. The average homeowner in Mountain House is ‘underwater,’ as it is known, by $122,000. Jerry Martinez, a general contractor, and his wife, Marcie, an accounts clerk, are among the struggling owners in Mountain House. Burdened with credit card debt and a house losing value by the day, they are learning the necessity of self-denial for themselves and their three children.”

“No more family bowling night. No more dinners at Chili’s or Applebee’s. No more going to the movies. ‘We make decent money, but it takes a tremendous amount to pay the mortgage,’ Mr. Martinez said.”

“Kenny Rogers moved into Mountain House last year, buying a foreclosed property on Prosperity Street for $380,000. But the decline in values has been so fierce that he too is underwater. He has cut his DVD buying from 50 a month to perhaps one, and is waiting until the Christmas sales to buy a high-definition television. He does not indulge much anymore in his hobbies of scuba diving and flying. ‘Best to wait for a better price, or do without,’ Mr. Rogers said.”

“The Martinezes bought their house in early 2005 for $630,000. It is now worth about $420,000. They have an interest-only mortgage. In 2015, Mr. Martinez said, his monthly payments will be $12,000 a month. He laughed and shook his head at the absurdity of it. They rent movies. They play board games. (But not Monopoly — with its real estate theme, it reminds them too much of real life.)”

“‘It’s a vicious circle,’ Mr. Martinez said. The economy is faltering because he and millions of others are not spending. This killed his career in home remodeling this year, and threatens his current work as a contractor on commercial properties. Mr. Martinez acknowledges that it has entered his mind to turn his house back over to the bank. ‘By next June, if things aren’t better, I’m walking,’ Mr. Martinez said.”

The Contra Costa Times. “In a setback for homeowners menaced by a troublesome mortgage, Wachovia Corp. has abruptly terminated a program with several mortgage companies that would have allowed consumers to restructure their home loans to avoid a foreclosure. The program was announced in late September with much fanfare. The idea behind the program was to identify people with their ‘Pick-A-Pay’ adjustable rate mortgages”

“San Ramon-based BWC Mortgage Services was one of a select group of financial firms that Wachovia had tapped. ‘The program was terminated about a week ago,’ said Michelle Kinder, an executive vice president with BWC Mortgage.”

“‘Quite frankly, the results were not what we had expected,’ Kinder said. ‘The percentage of borrowers that we were able to actually help was quite small.’”

“Salinas resident Jerry Williams has been scrambling to strike a deal with Wachovia to avert a foreclosure on his home. When Williams first heard about the program, he quickly called BWC Mortgage. BWC told Williams they were working with Wachovia and would be glad to assist him. Three weeks went by and then BWC told Williams of a sudden change in the pilot program.”

“‘Wachovia pulled the plug on BWC,’ Williams said. ‘When I called Wachovia, they said they hadn’t gotten money from the bailout. The only program Wachovia offered me was to taken my next three months of payments and put them at the back of the loan.’”

The Sacramento Business Journal. “Ethan Conrad amassed a small empire by acquiring fixer-upper commercial buildings, but now he believes there are bargains in new territory — land for single-family homes. ‘I’ve watched values plummet by a pretty shocking amount,’ said Conrad, who bought 267 lots from homebuilders William Lyon Homes and JTS Communities Inc. in the past few months, spending about $11 million on assets that cost those homebuilders $45 million.”

“Guy Spitzer is a VP at Cornish & Carey Commercial who concentrates on land and investment properties after a career with builders Renaissance Homes, Lennar Homes and Centex Homes. He is much more cautious about the state of the market, saying it’s possible that private investors have leapt too soon because they can’t reap profits until homebuilding is profitable again.”

“‘I have been a homebuilder for 25 years; I’m the guy who had to buy those deals,’ he said. ‘Nobody has any proof that we’re at bottom. Our country is going into recession and that’s going to cause additional pain in California — it’s just a tough, tough time.’”

The Merced Sun Star. “Last year Merced Paseo, an offshoot of Summerton Homes, proposed a 142-home subdivision at G Street and Bellevue Road. The neighborhood’s driveways are paved, the streets have names and wiring sprouts from the ground. The only parts missing are the homes. Six model houses, surrounded by a fence, show a neighborhood frozen in a credit crunch.”

“County Bank’s bid to collect a $9 million construction loan it made to a local developer may be headed for trial. The local financial institution made a loan last year to finance Paseo.”

“A hearing on whether the bank, if successful in its case, can seize the personal assets of Todd Bender, the head of Merced Paseo, is scheduled for next week. County Bank spokesman Thomas Smith said he can’t comment on current court cases. Don Drummond, the developer’s San Francisco-based attorney, also declined to elaborate on his defendant’s side. ‘We’re in litigation. We’re duking it out,’ he said. ‘May the best man win.’”

From Fox 35. “Monterey County of Association of Realtors say in the month of October 350 homes sold throughout the county and that 70% of sales were foreclosed homes. Hans Thomas is a first time home buyer and getting married this Saturday. He has lived in California for almost two decades and never thought he could own a home until now. ‘Before the housing price started collapsing we were looking to buy a sail boat to live a board, we both enjoy that. When prices came down we said let’s get into the housing market and take advantage of it,’ he said.”

“Thomas says during the housing boom he and his soon to be wife had some huge decisions to make. ‘We really did not want to be in a situation where the home owned us. That was a big deciding factor for us. We were actually looking for jobs else where in the country. Where what we earned was more in line with the cost of housing.’”

From USA Today. “Ventura’s housing market, like the rest of the nation, is suddenly in a holding pattern. ‘In the last several weeks we’ve had all the uncertainty in the market and so everybody just stops in their place,’ says Dale King, president of the Ventura County Coastal Association of Realtors. ‘But the coastal areas recover quickly.’”

“The majority of the foreclosures in Ventura stemmed from 2004 and 2005, according to King. ‘That was when prices were peaking and lenders were making incredibly exotic loans,’ such as subprime loans, he says. ‘Lenders were trying to loosen up their programs to just get people in any way, shape or form. There was also fraud that took place because people were vulnerable.’”

“Local realty agents expect Ventura home sales will rebound fairly quickly. ‘In the last month I’ve gotten a lot of calls from prospective home buyers,’ says Janet Caminite, a real estate agent at Sotheby’s International Realty. ‘They are not writing offers right now, but the fact that they are inquiring is a good sign.’”

The San Gabriel Valley Tribune. “With units that range from $2.25 million to more than $4 million, the exclusive oceanside resort in Rancho Palos Verdes certainly isn’t for everyone. But Robert Floe is hooked. The 53-year-old Pasadena investment advisor recently went in with business partner Lee Wolfe and Wolfe’s father to purchase a 2,040-square-foot Casitas unit in Terranea for $2.65 million.”‘

“It’s full ownership,’ Floe said. ‘They furnish it and maintain it, but they also put you in a rental program.’”

“Floe said he’s excited about his purchase, a move that was made primarily as an investment. ‘There is so little oceanfront property available in California and I’ve got a Casitas that’s literally right on the ocean with a view of Catalina,’ he said. ‘I think this will be considered one of the most popular resorts in Southern California.’”

“Buyers who purchase a Villa or Casitas unit at the resort cannot live there year-round. Villa owners can stay at their units for 90 days out of the year, and Casitas owners for 60 days. For the remainder of the time, they can rent their units out to the public at the going market rate. ‘You can enjoy the pride of ownership and the benefits of ownership because you’re renting it out,’ said Dan Cooke, Terranea’s director of sales and marketing.”

The Union Tribune. “In these depressed times for real estate, they can be found all over the county: million-dollar homes that are so beautiful and inviting from the outside, but dark and empty on the inside. Peer into the picture window. There’s no life, no family.”

“Opened six years ago, the Golf Club would seemingly have everything a well-to-do, golf-loving member could want. Yet on an afternoon perfect for golf last week, there wasn’t a player to be found. The black iron gates that open to the club’s parking lot were locked. There wasn’t a ball on the driving range. There was something odd, too, about the greens that can be seen from the road. No flagsticks.”

“Ten days ago, the Golf Club of California closed. In an e-mail sent at 3:20 a.m. on Oct. 30, General Manager Kay McLaughlin, representing her family’s Korean ownership group, informed members that Halloween would be the last day the club would be available for play. Member dues were suspended as of Nov. 1. Lockers were to be cleared out immediately.”

“The original dreamer at the Golf Club was Wade Cable, the president of William Lyon Homes at the time of the course’s construction and opening. Cable is an avid golfer, and The Golf Club became his pet project. Once a novelty and selling tool for Lyon Homes, the club became a burden when sales cooled. Cable was set to retire in early 2007, and Lyon began to look for a buyer.”

“It has become clear that when McLaughlin purchased the Golf Club of California, she didn’t come close to grasping the depth of the course’s difficult road. She admits as much now. ‘I know this is my fault,’ she said. ‘I bought the golf course. But I wonder all of the time, ‘Is that bad enough to be penalized this much, to possibly lose everything?’ I’m gregarious. I jump into things. It is my strength and my weakness. I’m a dreamer.’”

“George Hall, a former Golf Club member who works as a consultant to golf clubs, has seen what happens next many times before. ‘The builder builds a golf course,’ he said. ‘Then they sneak up at night, throw the keys on the front door and run.’”

“In Hall’s opinion, Lyon Homes all but did that. ‘They made a decision to sell the club and put it on the chopping block,’ Hall said. ‘As a seller, they didn’t care who the buyer was, which is unfortunate for the members.’”

The San Francisco Chronicle. “Starting Jan. 1, the biggest loan on a single-family home that can be purchased by Fannie Mae and Freddie Mac falls to $625,500 from $729,750 in certain high-cost areas including most Bay Area counties. Julian Hebron, a vice president with RPM Mortgage, says the government’s press release last week ‘left the door open’ for a continuation of higher limits. ‘These limits were legislated in a crisis. We are still in the crisis,’ he says.”

“But Keith Gumbinger, a vice president with HSH Associates, a publisher of mortgage information, doesn’t think it will happen. ‘There are so many other problems in the world right now, I’m not sure this is a front-burner issue,’ he says.”

“Traditional banks have been unfairly blamed for the financial crisis rocking the nation, the president of the American Bankers Association said Monday in San Francisco, blaming instead reckless loans issued by ‘the highly leveraged and fast-buck crowd.’ ‘Frankly, we all have a right to be angry at what has happened,’ ABA President Edward Yingling said as 1,700 bankers opened their annual conference.”

“Yingling laid primary blame for the current mess on mortgage lenders, operating under fewer rules, for making loans ‘good bankers would not make,’ and using investment firms like Bear Stearns and Lehman Bros. to sell ‘toxic subprime loans’ to investors worldwide.”

“In a panel discussion Monday, John Reich, head of the Office of Thrift Supervision, the federal agency that oversees savings and loans, also criticized mortgage lending practices and said the Mortgage Bankers Association had recently contacted his office to discuss federal oversight for these lenders.”

“Reich, a Bush administration appointee, said in retrospect it is clear that questionable mortgages that relied upon stated income, with little or no documentation, had contributed to the chain of events that have caused the current financial crisis. ‘I regret that I and my colleagues did not act to change these practices . . . until the bottom of the housing market fell out,’ Reich said Monday.”

“Steve O’Connor, government affairs representative for the Mortgage Bankers Association, confirmed that his group, whose members are chartered by state authorities and only indirectly scrutinized at the federal level, had started talking with Office of Thrift Supervision officials about federal regulation to prevent a recurrence.”

“‘Our industry has acknowledged that we have had a role in the problems that are confronting the housing and financial sectors,’ O’Connor said.”

“Kent Steinwert, CEO of the F&M Bank in Lodi (San Joaquin County)…said smaller banks like his 23-branch chain, with about $1.7 billion in assets, never became embroiled in the financial shenanigans that have brought on the crisis. ‘I have no foreclosures in my portfolio,’ Steinwert said. ‘We’re not taking any of the bailout money. It’s not something we asked for or need.’”

“As smaller banks consider whether to accept capital infusions that would enable them to lend an estimated $10 for every federal dollar they accept, Yingling said they should not be pressured into making unwise loans. ‘That’s what got us into this mess to some degree,’ he said.”

The News Press reports from Florida. “The Fort Myers/Cape Coral metropolitan area ranks third nationally in foreclosures, a position not likely to improve with 20,000 homes on the market and another 29,000 in foreclosure. An estimated 40 to 60 percent of homes purchased during the boom went to speculators or investors. Problems also arose when individuals who didn’t have the means to own a home took ill-advised financial risks. ‘It was clearly a pace we couldn’t keep up,’ said real estate agent Steve Koffman. ‘Every waiter and waitress in town was buying a home.’”

“Now, the backlog of homes for sale is 22 months, and those in foreclosure would take another 24 months to sell. ‘We weren’t the only epicenter, but if you want to pick the poster-boy case, it is Southwest Florida,’ said economist David Jones.”

The Naples News. “Home resales in the Fort Myers area rose for the 10th month in a row in October. The median price fell to $119,000 last month _ 22.6 percent lower than it was in 2003. Brett Ellis, part of the Ellis Team for RE/MAX Realty Group in Fort Myers…said banks are selling single-family homes for less than $60,000 in Cape Coral and Lehigh Acres. In Cape Coral, Ellis recently sold a single-family home for $52,000. He has another one pending for sale in Lehigh in the mid-$40,000s.”

“Denny Grimes, president of Denny Grimes & Co. in Fort Myers, said about 60 percent of the sales made in Lee County today are bank-owned homes or short sales. He said prices continue to fall too because there are still so many homes on the market. He doesn’t see an end to the trend any time soon. ‘Are we close to the bottom now? We are not close to the bottom with the level of inventory we see,’ Grimes said.”

“But it’s got to stop somewhere. ‘It can’t go down to free,’ Grimes said.”

The Herald Tribune. “Alexis Wittrock stood in her front yard recently amid racks of her children’s old clothes, dishes, a small couch and other household items. She is slowly selling off a garage full of goods, downsizing for a move that she and her husband see as inevitable. They are planning to leave North Port, a Southwest Florida construction and growth boomtown that has fallen hard since the housing bubble burst.”

“In the most pronounced sign of the decline, North Port has issued fewer new home construction permits for the year — 119 — than it did during some weeks during the housing boom peak Wittrock’s husband, Mike Brooks, helped out at the yard sale before leaving for his job delivering pizzas, the only work he has been able to get in the past year. It is not enough to sustain the family of eight, which has had to drastically cut back since the days when Brooks made six figures as a construction manager and Wittrock managed contracts for a national home builder.”

“Jim Rahill, was laid off from (a) Venice window and door maker a year ago, and has managed to stay in North Port, though it has not been easy. Rahill has watched $62,000 in value bleed from his house. He took a two-thirds pay cut at a local manufacturing job, and rented out a room in his house to help cover the mortgage. He describes North Port as being ‘on life support and just won’t die.’ ‘I’ve got a lot of acquaintances that just don’t have jobs,’ he said.”

“Brooks and Wittrock say they cannot wait for a turnaround here. If Brooks finds a good job outside Florida, he will leave with plans for the family to follow later. He is not putting much stock in government efforts to spur an economic rebound. ‘If nobody’s working,’ he said, ‘it doesn’t matter.’”

The St Petersburg Times. “After about $1-million in renovations, the old Victoria Lodge has a new tin roof, turquoise shingles with white trim and a tropical landscape. But the only traffic Friday flew by: an egret, an osprey and a flock of small birds. Just inside the building, built in 1903, a photo of three smiling developers hangs near the door. And a big ‘Marina 200 Main Street’ sign hangs near an empty sales desk.”

“But now, another big sign has gone up on the Main Street side of the 1.6 acres: ‘Great Dunedin waterfront site available.’ Jim Egnew, Richard Gehring and Bill Kimpton are advertising for buyers or investors for their much-ballyhooed $30-million Marina project. After spending more than $2-million of their own money, the developers of the Main Street project are being sued by their bank for defaulting on nearly $5.7-million in loans.”

“Only someone who can afford to buy it and hold it will buy now and they will pay 30 cents on the dollar, said Mark Klein, a Clearwater real estate broker who’s familiar with the project. Klein said the real estate market took a similar dive in the late 1980s to early 1990s during the savings and loan banking crisis. ‘Banks took properties back … and finally let someone buy them for pennies on the dollar,’ Klein said.”

“Klein said his company also has vacant land for sale where condos were planned. ‘There is no market because supply has outstripped demand,’ he said.”

The Daily Business Review. “Corus Bank, one of the most active lenders to developers during the condo construction boom, is taking title to the twin, 26-story Tao Sawgrass condominium buildings in Sunrise in lieu of foreclosure. Although there have been no closings on the complex’s 396 units, purchase deposits are in place on about 80 percent of the project, according to John Barkidjija, a Corus senior vice president in Chicago.”

“Since buyers have not closed on any of the condos, ‘the project is worth less than the capital loaned on it,’ said Tom Bartelmo, CEO of J.I. Kislak in Miami Lakes.”

“Corus Bankshares president Robert Glickman described the ‘current housing calamity’ as worse than even the severe downturn the company had expected. The overall credit market collapse, and Corus’ focus on condo construction loans, have led to significant increases in bad loans and operating losses, Glickman stated. ‘Unfortunately, we anticipate these difficulties will persist for some time,’ he said.”

The Biscayne Times. “According to statistics from the Miami-Dade County clerk’s office, as of the end of September, there were 40,342 foreclosures filed countywide, compared to less than 27,000 the year before, and fewer than 10,000 in 2006.”

“Condos are a problem, no doubt, because that market was driven to a large degree by speculation. ‘That’s still the $64,000 question,’ quips William Hardin, director of real estate programs at Florida International University’s Department of Finance. ‘Who will be the end-user in the condo market?’ (Of course, the joke, courtesy of the Daily Show, is that ‘thanks to Lehman Brothers, Morgan Stanley, AIG, Freddie Mac, and Fannie Mae, the $64,000 question is now worth $1,324.86.’)”

“‘The risk in some of these large buildings is that they aren’t all sold, or you have a number of units in foreclosure and they aren’t paying their assessments,’ he says. ‘So you may get a good deal but you’re buying into a management problem. Some of what we built is too large.’”

“He sees tough times for a mega project like Midtown Miami because it’s too big, too isolated, and a little too far from the Boulevard and Biscayne Bay to compete in this market. That’s why much of the sales effort there has turned to the rental market. ‘It’s a great project,’ he says. ‘The question is the scale of it. Can you draw in literally thousands of people to that area? In ten years, it will happen. The question is what it will look like between now and then.’”

The Associated Press. “It took John Cicero and his wife an appraisal, some convincing by their real estate agent and some hard-to-swallow facts to get them to lower the $525,000 listing price on their five-bedroom home in Valrico, Fla. They closed two weeks ago for about $380,000. ‘We didn’t really understand the severity of the market,’ Cicero said. ‘We lost close to $100,000 in equity so we were walking away from real money.’”

“They built the stucco home four years ago for $380,000 and poured more than $80,000 into it, putting in hardwood floors, granite countertops, ceiling fans, blinds, drapes and a built-in surround-sound stereo system. They also expanded the deck by the pool, turning it into what Cicero called an ‘executive entertainment area.’”

“‘You think you have this wonderful home and people will want to buy it,’ he said, ‘but you’re wrong.’”

The Palm Beach Post. “Known for preaching the power of positive thinking, Realtors heard an uncharacteristic outpouring of pessimism during the four-day gathering of the National Association of Realtors that ended Monday. In educational sessions and news conferences, the 23,000 people in attendance heard speaker after speaker use downbeat tones to describe a still-cratering housing market.”

“There was National Association of Realtors Chief Economist Lawrence Yun saying 2008 will be the worst year for home prices since the Great Depression. And there was Gary Keller, head of national chain Keller Williams Realty, invoking another d-word. ‘It is dire,’ Keller said. ‘Make no mistake about that. These are tough times.’”

“St. Louis broker John Mayfield summed up Realtors’ quandary during a session on keeping agents motivated. In this boom-to-bust market, agents gripe about the lack of business, while brokers lose money and consider closing offices. ‘We’ve got all this stuff running through our head, but we’ve got to sound excited,’ Mayfield said.”

“‘Property Crisis,’ the headlines read in 1950. In 1982, it was ‘Analyst warns of big bankruptcies.’ The year 1991 saw ‘Washington is crippling the economy.’”

“History repeats itself, and America will emerge from the current economic fiasco to one day suffer another, real estate expert Michael Cannon told members and guests of the Developers and Business Alliance at Mar-a-Lago last week. ‘Each decade, we have the same crisis that’s the worst crisis that we’ve had since the previous crisis,’ said Cannon, executive director of Integra Realty Resources in Miami.”

“Most of the speakers shared positive views and hopes for the economy, including DBA Honorary President Evangeline Gouletas, who encouraged the international audience to invest in South Florida real estate. ‘This is not the time to sell,’ said Gouletas, CEO of Skyline Equities Realty in Miami. ‘This is the time to buy. I wish I had a zillion dollars and I could buy, discreetly, as much as I want. The prices will never be lower.’”

“When it came time to answer perhaps the most pressing question - when will this dismal decline end? - Cannon covered all bases with a cautious prediction. ‘We’ll probably see this period to further expansion - I’m not going to say ‘boom’ again - take place probably in the next 36 to 48 months. That’s the optimistic side,’ he said. ‘The pessimistic side? It could take 10 years. I don’t believe it will take 10 years, because this country is too antsy to do that.’”

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