The Housing Bubble

Reuters reports on California. “Home sales in the San Francisco Bay area rose nearly 39 percent in October from a year earlier and the median home price posted a record fall, a report on Thursday said. The median price paid for all homes in the region fell to $375,000 in October, down 40.6 percent from a year earlier, as the median price fell for an 11th consecutive month on a year-over-year basis. The median price was down 6.3 percent from September, MDA DataQuick said.”

“In October, 44.8 percent of all existing homes sold in the San Francisco Bay area had been foreclosed on at some point in the prior 12 months, up from 41.9 percent in the prior month and 8.2 percent a year ago, according to MDA DataQuick.”

“‘The dramatic, near free-fall in the Bay Area’s median sale price in recent months stems mainly from the shift toward more sales occurring in lower-cost inland markets. At the same time, the role of foreclosures continued to grow across the region, adding more downward pressure to the median,’ John Walsh, MDA DataQuick president, said in a statement.”

The Mercury News. “More Santa Clara County homes changed hands last month than during ultra-slow October 2007, but median prices fell sharply compared to last year. Previously foreclosed properties accounted for more than one-third of sales in the county. The median price of the houses sold last month was $515,250, down 34 percent from a year earlier, according to MDA DataQuick.”

“In San Mateo County, the median price of resale houses fell 26 percent last month, to $642,500,. In Alameda County, resale house prices dropped 39 percent, to $380,000. Contra Costa County’s median house price plunged 49 percent, to $275,000.”

The Marin Independent Journal. “Marin’s median price for all homes was $599,750, down 31.5 percent from the $857,000 median a year ago. The median price of a single-family home in Marin last month was $850,000, down 13 percent from $978,000 last year, MDA DataQuick of San Diego reported Thursday.”

“The San Francisco 49ers, San Jose Earthquakes and Oakland A’s, all of which hope to open new homes worth a combined $1.5 billion by 2012, insist they are forging ahead. But the economy is raising tough questions about where all that money will come from, and when. Lew Wolff, the multimillionaire developer who owns both the Quakes and the A’s, has told the Mercury News he’s no longer planning to immediately fund his projects — in San Jose and Fremont, respectively — with proceeds from planned residential developments.”

“Wolff has asked the city’s permission to allow residential construction on the site; he would then sell it to housing developers and use the profits to build the stadium. Now Wolff finds himself waiting for the housing market to rebound. ‘If this was a typical recession, then I don’t think it would be a big factor,’ Fremont Mayor Bob Wasserman said of the economy. ‘But we’re talking about something different.’ If the residential piece of the project lags, he fears, the stadium itself could be delayed.”

Palo Alto Online. “Developer John McNellis’ decade-long quest to replace the boarded-up Alma Plaza shopping center with a grocery store, 37 homes, a commercial building with 14 below-market-rate apartments and a ‘community room’ may stretch into a second decade.”

“‘Financing a mixed-use project is historically difficult,’ McNellis said. ‘We’ll be seeking to finance these projects separately. There are lenders who will consider low-income housing and there are other lenders who will consider commercial.’”

The Merced Sun Star. “At one of the city’s abandoned … er … I mean … temporarily vacated home developments, the builder has left a half-built wall that seems to attract spray paint cans like the Raiders attract tailgaters. I’ve received many calls about the graffiti problem in this area, but it wasn’t until I saw it with my own eyes Saturday that I realized how bad it had gotten.”

“The would-be home of Highland Park, which has halted development, is apparently the home of a nest of taggers that have littered the massive wall with their ‘art.’ The city is already in negotiations with Pacific Pride of Modesto, the company in control of the property. City of Merced spokesman Mike Conway says the city wants the company to fix the problem and prevent it in the future.”

“‘We want them to include landscaping and water so that you have something growing on it,’ said Conway. ‘No fresh canvas for all of those vandals to attack.’”

The Bakersfield Californian. “An Oregon man finally got a look at his elderly mother’s northeast Bakersfield house Wednesday, a day or two after people who had been living there without his consent vacated the property. A refrigerator was gone. Graffiti was spray painted throughout the garage and scribbled on a bedroom wall in permanent marker. A rear window was smashed, and holes marred several walls. Air duct vents had been removed. The carpet was stained in every room.”

“And a few furniture pieces that don’t belong to Harold Pretorius’ mother were scattered about, including, oddly, a pool table in the driveway. ‘They only left me a couple of balls and no cues, so I can’t even play while I wait for the police,’ Pretorius said wryly.”

“Pretorius recently moved his 89-year-old mother to a nursing home near him and was overseeing the sale of her house. In September, Pretorius called police and told them squatters had broken in and threatened a pending sale.”

“When police went to the home last month to investigate, they found Michael Ayala living there with a girlfriend, a roommate and the roommate’s 8-year-old son. Pretorius had his attorney serve Ayala and his friends with an ejection notice two weeks ago, and then cut off water and electrical power, which had been in his mother’s name. Pretorius then put a fraud alert on the accounts, preventing anyone but him from turning on service.”

“Next, Pretorius reported Ayala to the city’s Division of Code Enforcement for residing in a home without power or water. ‘That is a violation because without electricity we worry about people lighting candles and burning down the place, and no water becomes a health and sanitation issue because you can’t flush toilets,’ said chief code enforcement officer Randy Fidler.”

“Ayala and his roommates did not leave after a 48-hour warning was posted on the house last week, so an inspector red-tagged it, notifying occupants that anyone found residing there would be cited with a misdemeanor safety violation until utilities were restored.”

“Pretorius said he feels violated and powerless. His buyer has walked away, and now he has to spend thousands of dollars on repairs. ‘I can’t believe they called this a civil matter,’ he said. ‘If stealing a house from an 89-year-old woman isn’t a crime, I don’t know what is.’”

“Will Lehman Brothers get to foreclose on McAllister Ranch? A federal bankruptcy judge in Santa Ana is slated to decide the thorny question Thursday afternoon. A foreclosure would wipe out claims of junior creditors and unpaid construction companies owed hundreds of millions.”

“There’s a new big-name player in the ongoing involuntary bankruptcy case: Lennar Homes. The homebuilder’s California division put down about $22.6 million of deposits in 2006 for purchase agreements regarding McAllister Ranch, but the deals never closed. Lennar now believes its deposit money may have been transferred to Lehman’s commercial paper unit, a recent court filing shows.”

“SunCal Cos., the Irvine developer that partnered with Lehman on numerous projects including McAllister, recently filed five more involuntary bankruptcy petitions for Lehman-related projects. Twenty Lehman-SunCal developments are now in bankruptcy court.”

“The latest filings affect high-rise condos in Century City, the Delta Coves waterfront development on Bethel Island, Avalon Palm Springs near Palm Springs, Oak Knoll in Oakland and the early-stage Del Amo project in Torrance. SunCal also filed three voluntary bankruptcy petitions Wednesday.”

The Tribune. “A top state banking official Wednesday reiterated what others have said about the nation’s economy — that the next 18 months to two years will require considerable belt-tightening, ‘and it’s going to hurt.’”

“And as the recovery occurs, the stock market will have to ‘come back to reality’ and housing prices will have to return to a level that’s compatible with what people earn, said Jim Lokey, president of community banking for Rabobank, N.A., who’s also chairman of the California Bankers Association.”

“Lokey also said he wouldn’t shy away from investing in real estate. ‘If you plan on living in it a while, I wouldn’t be afraid to buy a house today or get a mortgage today,’ he said.”

“Lokey also used the forum to offer his personal explanation for how and why the nation’s economy fell on hard times. He pointed out two culprits in the financial collapse: banks generating home equity loans, which homeowners tapped into to make major purchases; and exotic mortgage products that allowed people to buy more house than they could afford. In this ‘consumer-driven’ economy, people were encouraged to spend far more than they earned, he said.’

“‘Those loans were something I didn’t believe banks should do,’ he said. ‘Home equity was your security; you just didn’t tap into that.’”

“But the final straw, he said, was subprime lending that enabled financial institutions to take the risk and make loans to people with less-than-stellar credit. The subprime loans were packaged as mortgage-backed securities and sold to investors hoping for higher returns.”

“‘Everyone knew that real estate goes up 25 percent a year,’ Lokey said, pointing to the fallacy of that statement. As the economy slowed, some homeowners stopped paying their mortgages and banks worldwide stopped lending to each other. And ‘the people at the highest levels of government panicked,’ he said.”

The Orange County Register. “There’s a sense of urgency in Yadira Gomez’s voice as she outlines the crises facing the families she helps at the Share Our Selves, a social service agency in Costa Mesa. Two to three families a day walk into the nonprofit’s crowded waiting room facing essentially identical situations: The interests rates on their home loans have skyrocketed, their mortgage bill has doubled or tripled, and their home is slipping into foreclosure.”

“Across the county this fall, nonprofits and government agencies have been overwhelmed by this new population of clients. Mortgage brokers, real estate agents, construction CEOs: these are the types of clients that SOS doctors, nurse practitioners and volunteers are helping, says Karen Harrington, director of development. Often, the clients are in shock over their situation. ”

“‘There are a lot more conversations in exam rooms of ‘I’d never think that I would be here.’ It’s not what you typically expect to see,’ said Harrington.”

The Press Enterprise. “The notice on the door of Robin Elder’s upscale consignment store — a picture of a turkey and the phrase ‘I’m stuffed’ — is a sign of the times. Good times for resale. ”

“A bad economy equals a boost in business for consignment shops, say owners, who report a marked increase in customers looking for bargains. They’re also seeing a jump in the number of people wanting to exchange their old clothes for cash. ‘More people are bringing things in to sell. I have so much,’ said Elder, owner of My Girlfriend’s Closet in Temecula. Thus the sign on her door.”

“More people are willing to take an instant payout — basically ‘garage sale’ prices — for their Coach bags and True Religion jeans, she said.”

“The trend is not limited to the Inland area, said Adele Meyer, executive director of the National Association of Retail and Thrift Shops. A recent survey of the trade group’s 1,000 members showed that 66 percent of stores saw sales climb between January and August, compared with the same period a year before. Sales were up an average of 35 percent.”

“More than 85 percent of stores said the number of new customers has increased, and 75 percent have seen new people bringing in merchandise to sell, Meyer said.”

“Mary Irey, owner of New 2 You in Grand Terrace, (has) noticed an uptick in new shoppers looking for big-ticket items such as appliances, furniture and cookware. Irey gets some of her merchandise from auctions of moving and storage units that are abandoned, and she figures some of it has to do with the rash of foreclosures.”

“Rhonda Sher, of Murrieta, is a consignment aficionado, seeking out ‘upscale and bling,’ like the one-of-a-kind, hand-painted Saks jacket she scored for $49, worth hundreds at retail. Some of her favorite detours are Sparkle Plenty Resale Boutique in Oceanside and the annual white elephant sale at the Oakland Museum of California. ‘In this market, it’s just a fabulous way to shop,’ she said.”

“Sher also frequents Ronni’s Resale in Sun City, where a $1,000 St. John knit can be had for $160. Clothes are marked down regularly until they make their way out the door after 60 days, owner Ronni Kantra-Peters said. ‘If it’s been in a lady’s closet for more than a year, we’re not interested’ in buying, she said.”

The Desert Sun. “Coachella Valley home sales during the third quarter of 2008 jumped 51.5 percent compared to 2007, driven predominately by buyers nabbing foreclosures and other distressed properties. Average prices are down as banks try to clear out the rising number of foreclosures and other sellers try to compete with the deals offered on distressed properties.”

“‘It’s creating new market-level prices and competition,’said Patrick Veling, president of Brea-based Real Data Strategies. ‘Traditional sellers can agree to meet or beat (bank prices) or simply wait it out.’”

“The bulk of homes sold are going for less than $500,000, a price point that traditionally has been described as the entry-level market. In 2007, homes priced under $500,000 made up 68 percent of all local sales. In the third quarter of 2008, they accounted for nearly 85 percent.”

“In many cities where sales are up, the total volume of sales — the value of all the sold homes’ prices — is on par or even less than years where they saw fewer sales. Take the 92240 ZIP code of Desert Hot Springs. In third quarter 2006, 176 entry-level homes were sold equating to nearly $50.1 million in sales. Compare that to third quarter 2008, when 220 homes were sold — a 25 percent increase — but average prices have dropped about $150,000. Total sales equated to $29.5 million.”

“Experts say not all those are traditional entry-level homes. Some are move-up or upscale homes that have seen dramatic price reductions in order to draw buyers. ‘You’re seeing condos with a ‘1′ in front of it instead of a ‘2,’ Palm Springs Regional Association of Realtors executive officer Sam Schenkl said. ‘You’re getting a second chance at a home that may have been priced out of your reach.’”

“Kevin Stern has witnessed the market shift firsthand. The Rancho Mirage-based Windermere agent does a lot of business in Cathedral City. ‘Some of these homes that are selling in the 200 or $300,0000 range were selling for 4, 5, $600,000,’ said Stern, who wrote three offers this weekend including one for a foreclosure that had nine offers. ‘They’re priced extremely competitively and aggressively. It’s all a matter of pricing and products.’”

The Sun Sentinel reports from Florida. “A typical used home in Broward and Palm Beach counties now sells for less than $295,000, a price not seen here since spring 2004, according to the most recent data from the Florida Association of Realtors. Distressed properties fetch far less than that. Many existing condominium units, meanwhile, are going for under $140,000, nearly 40 percent less than two years ago. Age-restricted communities are seeing growing interest in one-bedroom condos selling for less than $50,000, real estate agents say.”

“Rebecca DiLenge’s only concern was in not buying. She and two roommates were renting an apartment in Pembroke Pines for $1,700 a month. But with home prices falling, DiLenge figured she could buy a home for as much as she was paying in rent. She was drawn to a two-bedroom condo in Weston listed for $165,000. She got it for $129,000.”

“‘Ideally, I wanted to wait a little longer before I decided to buy a home,’ said DiLenge, 25, a personal vacation planner for Carnival Cruise Lines. ‘But with prices so low now, it would have been foolish.’”

“Frank Ginder and his wife Susan Bleda, paid $170,000 for a one-bedroom Midtown condo originally priced at $279,900. Ginder and Bleda, who rent out their home in Wellington, planned to get a mortgage for the condo, but their California lender, IndyMac, failed this summer. Faced with the prospect of losing the Midtown deal or paying cash, Ginder and Bleda chose the latter.”

“‘To me, this couldn’t be a better time to buy real estate, if you believe in an area and the product and the builder,’ Ginder said. ‘Real estate has always been a good long-term investment.’”

The Herald Tribune. “When it comes to financial collapse, Sarasota real estate investor R. Craig Adams has few peers. Adams, who specialized in building waterfront mega-mansions during the boom, has defaulted on nine loans totaling $11.9 million since May. His former wife, Holly Adams, who divorced Adams in 2007, filed for Chapter 7 federal bankruptcy protection in January, listing $22.4 million in debts and only $3.9 million in assets.”

“Holly Adams said the bankruptcy was needed because her name appeared on most of the loans that her husband secured during his long real estate investment career. But that does not mean she knew a lot about her husband’s transactions. ‘I was a stay-at-home mom,’ Holly Adams said. ‘He said, ‘Sign here, sign here,’ and I signed.’”

“In (a) deal that involved sales to and from associates, long-time Adams business associate, Charles Scott Abel, bought a condominium unit on Siesta Key for $380,000 in June 2001 and financed the deal with $380,000 in loans from Bank of America. Abel sold the condo to Adams in April 2002 for $425,000 and Adams received $390,000 in loans from Impac Funding and AmSouth Bank.”

“Adams refinanced his initial loan in 2005 with $588,750 in loans from Opteum Financial Services and BB&T Bank, ultimately selling the condo to his sister’s brother-in-law, David Andrew Strickland, in June 2006 for $694,000. Strickland’s wife, Julie, said the deal was the worst investment decision she and her husband have ever made.”

“‘Craig is a hell of a salesman,’ Julie Strickland said. ‘The way he presented it, it was the greatest condo deal of all time. It was oceanfront property we could buy and pay for by renting it out. But this property has been our downfall. Our credit is ruined.’”

“Washington Mutual seized the condo in April after winning a $552,841 foreclosure judgment.”

“‘Craig’s biggest mistake was that he started doing big $5 million spec houses,’ said Richard Dear, a Siesta Key real estate investor who bought several properties from Adams over the years. ‘That’s when he ran into trouble.’”

“A curious thing happened in early September. After a long time in the darkness, the Southwest Florida real estate market finally began to show signs of life. But the housing crisis triggered a financial crisis, a credit meltdown and an overall economic tailspin that transformed the playing field in a matter of days and weeks.”

“For the Sarasota-Bradenton real estate market, the optimism evaporated. ‘We had people in here looking to buy. There had been a lot of activity. But as soon as the economy tanked, it was like somebody turned the water off,’ said Sherwin Taradash, a Michael Saunders & Co. agent based in Lakewood Ranch.”

“‘Trend lines and rules of thumb do well under normal circumstances, but now we have so many complex variables at work in the marketplace,’ said Jack McCabe, a Fort Lauderdale-based real estate analyst who correctly predicted the housing downturn before it began. ‘No one really knows where this thing is going.’”

The Beacon Online. “Volusia County’s unemployment rate is higher than national and state averages, and home-loan defaults are rising locally. Economic Development Director Rick Michael briefed the County Council on the local economy, noting Volusia has just over 258,000 people employed or able to work, and about 18,000 of them do not have jobs.”

“Perhaps to no one’s surprise, home construction has fallen to about half of the almost $145 million value for the July-September period of 2007. The slowdown in home building is related to the steep increase in foreclosures. The Clerk of the Court’s Office shows there were 4,195 foreclosures in Volusia County in 2007, and the number of homes repossessed in the first nine months of 2008 totals 5,679. ”

“Of those 5,679, only 739 have been sold, leaving a glut of houses on the market and driving the prices of many of them lower. ‘It’s a serious concern to us. It represents about 8 percent of our housing stock,’ Michael said.”

“County Manager James Dinneen recalled stories from Ohio and other Northern states, describing ‘people freezing to death in the streets of cities.’ ‘We’re getting to the point where, if all else fails, you turn to the county,’ he said. ‘How do we avoid the train wreck we know is coming?’”

‘Alluding to the barrage of gloomy economic news, Dinneen added he needs the council’s help to prepare a contingency plan in case ‘the bottom falls out.’”

The Palm Beach Post. “An analysis of the nation’s market for new homes from Metrostudy: ‘There are hundreds of housing markets, and each is on a different trajectory,’ said Brad Hunter, Metrostudy’s chief economist and national director of consulting. ‘Some markets never experienced a price boom, and are therefore having a less severe bust, but they are all suffering badly.’”

“Hunter’s comments came as the Commerce Department reported that construction of new homes and apartments fell 4.5 percent in October, the fourth straight monthly decline. Construction sank to an annual rate of 791,000 units from an upwardly revised September rate of 828,000 units. The results were the lowest on government records dating back to January 1959. Previously, the slowest pace had been in January 1991.”

“‘Naples/Fort Myers starts in subdivisions are off 92 percent from the peak, as of the end of the third quarter of 2008. Phoenix new-home construction is off 75 percent from the peak, while Atlanta is off 84 percent,’ Hunter said.”

“Austin (off 49 percent) and Raleigh (off 57 percent) never had a price bubble, and it is remarkable that they are down as far as they are, Hunter said. ‘Finished, vacant inventories are actually coming down, but they remain too high in most markets,’ he said. ‘The markets that have the most serious problems are Central Florida, with 8.9 months of finished, vacant home inventory, South Florida, with 8.3 months, Atlanta, with 8.1 months, and Coastal Los Angeles and Naples/Ft. Myers, each with 8 months.’”

“These readings are all far in excess of the ‘equilibrium’ level of 1.5 to 2.5 months that is typical in a normal market, Hunter said.”

“A Delray Beach man on trial for mortgage fraud used his position as a real estate closing agent to help others land more than $5 million in fraudulent loans, a federal prosecutor told jurors Monday in Fort Lauderdale federal court.”

“Howard Gaines smoothed the way for a Coral Springs con man to use straw buyers and forged documents to purchase dozens of Broward County properties, prosecutor Jeffrey Kay said in opening statements. That man, Anthony Dehaney, pleaded guilty last month to mortgage fraud charges and is expected to testify for the government at Gaines’ trial.”

“Federal authorities have touted the case as part of a crackdown on mortgage fraud. Since September 2007, federal prosecutors have charged more than 110 individuals in cases involving nearly $200 million in loans, according to the U.S. Attorney’s Office.”

The News Press. “The median price of an existing Lee County single-family home sold with the help of a Realtor was $147,800, down 39 percent from $243,800 in the third quarter of 2007. Sales increased 73 percent from 1,273 to 2,198 in the same period. At the peak of the real estate boom in the county, the median single-family home sold for $322,300, more than twice what it is now.”

“The trend of higher sales volume continued in October, said Steve Koffman, a real estate broker in Cape Coral. For example, off-water homes in Cape Coral sold for a median price of $105,000, down 5 percent from September, he said. Meanwhile, the number of off-water Cape homes sold was 337 in October, the highest monthly rate since 2004 except for September’s 349.”

“Some investors are buying up homes to rent them but many buyers are ‘people who can afford a house at $85,000 who couldn’t before,’ Koffman said.”

“People with good credit usually have no trouble getting financing but risk-sensitive bankers are turning down those with credit problems, he said. ‘If you’ve got questionable credit, you’re not going to get a loan, you’re just not.’”

The Orlando Sentinel. “Beleaguered developer Kevin Azzouz has sold his lavish lakefront mansion in Windermere for $8.25 million, according to a warranty deed recorded last week in Orange County. Azzouz bought the 22,000-square-foot, three-story home for $5.1 million in 1997, when he was riding high as a former dot-com millionaire looking to be a big-time land developer in west Orange County. The Orange County property appraiser estimates the cost of the building new would be $10.6 million.”

“Azzouz, who had ambitious plans to breathe new life into the MetroWest mixed-use development in west Orlando, is now scrambling to salvage what he can of the project, which has been slowed by the slump in condominium sales and the sour economy. Azzouz faces lawsuits, liens and foreclosures totaling more than $70 million connected to his half-built Veranda Park project in MetroWest. He did not return calls seeking comment.”

The Miami New Times. “When times get tough, the wealthy serve pigs-in-a-blanket at cocktail parties. Actually, those little bite-size wieners were the only hint of scaling back at a recent hoity-toity elbow-rubbing event at the Mar-a-Lago estate in Palm Beach. ”

“Members of the Hialeah-based Developers and Builders Alliance recently gathered at the estate to discuss fantasy architecture and how to get richer. Under enormous crystal chandeliers, they talked beachfront property in Costa Rica, shopping malls in Cairo, and, of course, how it’s just the right time to invest in South Florida.”

“‘All you have to do is observe the lifestyle we have here,’ Brickell-based developer Evangeline Gouletas gushed. ‘International buyers have been to the great cities of the world. You can’t buy land like this anywhere else.’”

“Gouletas has heard the economy is sagging. She chortled while recounting the tale of a housekeeper who bought a $5 million unit and then asked for her deposit back. If only Gouletas had a zillion dollars to bargain-shop in this ’soft’ real estate market!”

“Real estate consultant Michael Cannon, also of Miami, pooh-poohed all of those headlines about the weak housing market. ‘I’m guessing that only 25 percent of foreclosure filings actually end up in foreclosure sales.’”

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