December 31, 2008

$500,000 Is The New Million

Readers suggested a topic on the future of the real estate industry and the housing bubble. “Is there any cause for hope that the NAR will go bankrupt before the housing bust ends? CNN Money. “The number of existing homes sold during November plummeted 8.6% as prices plunged by record amounts, according to a closely watched housing industry report issued Tuesday. The National Association of Realtors said that home sales dropped to an annualized rate of 4.49 million units. That was down from 4.98 in October and much less than the 4.93 million units projected by a consensus of industry analysts.”

“‘The only region where we’re seeing more sales are where bargain hunters are taking advantage of distressed sale prices,’ said Lawrence Yun, the Realtors’ chief economist. ‘About 45% of transactions, nationally, were of distressed properties.’”

“Yun blamed the financial market turmoil for the devastating report. For months, sales had hovered 4.9 million to 5.1 million. ‘Today’s figure reflects the stock market crash that began in October,’ he said.”

“The drop took place despite bargain prices as property values continued their decline. The median existing home sold for $181,300 in November, down 13.2% from a year ago when the median was $208,800. Yun said that price drop was the largest the association had ever recorded and probably the worst decline since the Great Depression.”

One replied, “America is brainwashed that Realtors are ‘professionals.’ It just wont happen.”

To which was posted, “You are a pessimist. I am quite hopeful that once the full potential of internet technology for real estate sales comes to fruition, the traditional used home sales business model will be permanently broken. Let’s both make sure to avoid used home sellers like the plague and only use online shopping techniques next time we buy houses, in order to hasten the NAR’s demise.”

Another pointed out, “In the Herald - Tribune comments section someone refered to the NAR as the sixpercenters. Reminded me of a city youth gang, back in the 80’s, called the five percenters.”

The Bonner County Daily Bee. “Here in Bonner County, the average selling price for residential listings decreased by 7 percent through mid-December, compared with home sales activity for the 2007 period, based on information provided by the Selkirk Association of Realtors MLS. The average time on the local market was nearly five months. The fastest-moving sale took close to three months to close, while the slowest seller hung around for 266 days.”

“In short, there are still more homes than there are buyers and the off-kilter supply and demand cycle that had its roots in the housing boom of 2005 remained a drag on the market during the year that is just coming to an end.”

“One year ago nearly to the day, outgoing 2007 Selkirk Association of Realtors President Dale Pyne discussed how too much inventory - mostly of ’spec’ homes built on the heels of the white-hot real estate market in 2005 - had affected local housing prices and caused a correction in terms of fewer sales happening at lower prices. This month, Lana Kay Hanson, the outgoing 2008 president for the Realtors association, talked about how the correction continued throughout the past year and why she believes there is opportunity embedded in the lower housing statistics.”

“Q: How would you characterize the 2008 housing market? A: ‘It was a continuation of the bad market of the bad market we’ve seen since 2007. But there was some activity in November. It may not be gung-ho - they’re not knocking down the door - but people are realizing they can’t sit back forever.”

“Q: What’s your forecast for when the market might start to move upward? A: ‘I think we’re going to see these lower prices for at least another year, maybe longer. I do think that it’s turning, though. Not that prices are going up, but because people are starting to buy because of the deals out there.’”

“Q: Housing-related headlines in places like Phoenix and Las Vegas are saying, ‘$500,000 is the new million.’ Do you anticipate seeing the million-dollar listings going down in this market? A: ‘They’re already down. If someone had a listing for $1 million-plus in 2005, it’s probably in the $700,000-plus range now. Those properties have already taken the hit. Nobody was sheltered from this. But it had to come back to realism. Everything was getting out of range too fast.’”

“Q: Did the upward price spiral that preceded this correction start in 2005, or did it begin even earlier? A: ‘It really started in the fall of 2004. I remember seeing the statistics for home sales that November and December and realizing at the time that we really hadn’t seen anything like it before, as far as how many things were starting to sell during the winter months. Unfortunately, some people are still thinking their property is worth those 2005 prices.’”

“Q: It used to be said that we run about five years behind California as far as what the housing market is doing. Does that still hold true? A: ‘Yes, but it’s shortened to about three years. We’re really riding behind all of the other markets that are having tough times.’”

“Q: So there are some good buys because of tough times? A: ‘Extraordinary buys. There are some fabulous buying opportunities right now. But what I’m finding is that the new buyers - people who are just coming into the market for the first time - think they can get it for even less.”

“Q: With the lower sales price trends over the past couple of years, could they be right about waiting out the market a while longer? A: ‘I think we’ve hit the bottom, price-wise. We’re there. It may stay level for a long time, but as soon as more money comes into the market, prices are going to go up. It’s always the same story and it’s the same thing I’ve seen over the years. If you’ve got the money and you don’t buy in a market like this one, you’re going to kick yourself in 10 years.’”

Bits Bucket For December 31, 2008

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December 30, 2008

What Goes Around Comes Around In California

The Inland Valley Daily Bulletin reports from California. “Foreclosed homes are getting scooped up by investors and first-time buyers, but the massive supply of units being repossessed by banks and put on the market still exceeds home-buyer demand. More plunging home values are destined for Southern California, and especially San Bernardino and Riverside counties. ‘Home prices are falling faster than they were before, and that’s what people don’t understand,’ said Michael Carney, executive director of the Pomona-based Real Estate Research Council of Southern California. ‘We won’t see any leveling off until at least the spring of 2010. It’s likely to be later.’”

“Alex Espinoza Sr., president of Ontario-based California Capital Home Loans…says there are 8,000 homes and condominiums in the two-county area now going for $200,000 or below. Buyers should realize it’s a long-term investment and that California home prices rise an average of 5 percent to 6 percent every year if you hold on to the property for at least 30 years, Espinoza said.”

“Jim Mulvihill, an urban planning and economic geography expert at Cal State San Bernardino…notes the tax break homeowners receive for owning a home. ‘We’re the only industrialized country that does that,’ he said. ‘We’re going to have that, I think, forever.’”

“‘In general, in California, property is always going to rise in value,’ Mulvihill said about long-term real-estate values. ‘It’s an investment.’”

The New York Times. “With nearly one in six homes worth less than the mortgage owed on it, according to Moody’s, divorce lawyers and financial advisers around the country say the logistics of divorce have been turned around. For John and Laurel Goerke, in Santa Barbara, Calif., the housing market crashed in the middle of what Mr. Goerke said had been an orderly legal proceeding. At the height of the market, Mr. Goerke said, they had their house appraised at $2.3 million, which would have given them about $1 million to divide after paying off the mortgage. But by the time they sold last year, the value had fallen by $600,000, cutting their equity by more than half.”

“‘That changed everything,’ said Mr. Goerke, who is now nearly two years into the divorce process, with legal and other fees of several hundred thousand dollars. ‘The prospect of us both being able to buy modest homes was eliminated. The money’s not there.’”

“Now, with both spouses living in rental properties, their lawyers still cannot agree on what their remaining assets are worth. Their wealth is ticking away at $350 an hour, times two. ‘It’s got to end,’ Mr. Goerke said, ‘because at some point there’s nothing left to argue about.’”

“‘We used to fight about who gets to keep the house,’ said Gary Nickelson, president of the American Academy of Matrimonial Lawyers. ‘Now we fight about who gets stuck with the dead cow.’”

The Recordnet. “State and federal regulators have hit Community Bank of San Joaquin, based in Stockton, with a cease-and-desist order that charges bank management with unsafe or unsound banking practices.”

“The bank was operating with insufficient capital, had too large a volume of ‘poor quality’ loans and engaged in unsatisfactory lending and collecting practices, according to an order issued jointly by the Federal Deposit Insurance Corp. and the California Department of Financial Institutions.”

“The bank did no subprime mortgage lending, said Bank CEO Jane Butterfield, and all of the ‘nonperforming’ loans were to local home builders taking out loans before 2007 to buy land and build single-family homes. No one guessed the real estate and financial sectors would see such a harsh downturn, she said, and San Joaquin County is ‘ground zero’ as the worst market in the country in the real estate-related meltdown.”

“‘Hindsight is 20/20,’ Butterfield said. ‘I don’t feel we were operating in an unsafe and unsound manner. … At the time we made the loans, they were good loans.’”

The North County Times. “One of North County’s largest home builders, Carlsbad-based Barratt American, filed for bankruptcy protection from creditors last week as it struggled to survive one of the worst local housing downturns in history. If Barratt American were to fail completely, it could cause a painful ripple through several local businesses. Of its top 20 creditors listed in a Chapter 11 bankruptcy filing, 11 were based in San Diego or Riverside counties and were owed $10.9 million.”

“Michael Pattinson, the company’s president, said Barratt was forced into bankruptcy after its lender, Bank of America, canceled a line of credit. He said the two companies had worked together for 27 years. Bank of America has seized all four North County projects in foreclosure.”

“Pattinson has crisscrossed the country, telling legislators about the pain builders are feeling because of ‘bad banks.’ ‘What upsets me is that a company that I was loyal to was not loyal to me,’ Pattinson said. ‘But we’re big boys. We know what goes on in this world, and what goes around comes around. I’ve got my boxing gloves on, and I’m up for the fight. I’ve lost Round One, but there’s 14 more rounds to go.’”

“But Dan Schaldach, owner of D&S Construction in Escondido, said he sees it differently. His company has been framing houses for Barratt for years, he said. ‘I think he (Pattinson) has been blaming other people for their mismanagement,’ Schaldach said. ‘They had a pretty high lifestyle, and it caught up with them.’”

From New Times SLO. “Caleb Lopez is one of the lucky ones. With several big development projects on his plate and a steady flow of smaller, private jobs coming in, Lopez might be considered a rarity when it comes to being a contractor in today’s economy. Following the overall downturn of the nation’s economy and the collapse of the housing market last year, contractors have been working especially hard to stay afloat financially.”

“‘Everything has changed,’ said Lopez, a general contractor and owner of Cal Coast Construction.”

“For several years, he said, construction was ‘people’s bread and butter’ in San Luis Obispo and Santa Barbara counties. But as the economy began to slow the business was forced to readjust to the changing economic climate. To make ends meet, companies tightened their tool belts by lowering prices, laying off laborers, or even filing for bankruptcy.”

“According to Leslie Halls of the San Luis Obispo Builders Exchange, development has slowed significantly.She said the number of bidders per project is higher than it has been in 15 years. ‘There’s just a lot more guys coming in chasing a lot less work,’ Halls said. ‘It’s gotten incredibly competitive.’”

“And while Lopez continues to do good business the state of his ailing industry stays on his mind like caulk on kitchen tile. ‘The industry has a pattern that repeats itself over and over again,’ he said. ‘Hopefully, you saved up when times were good.’”

The Press Enterprise. “The Inland region’s population boom is over, in large part due to skyrocketing foreclosures and unemployment. In Riverside County, about 13,600 people moved into the county, nearly one-third of the 30,000 people who moved in the previous year. In San Bernardino County, about 9,000 people who lived in the county left this year; about 1,000 people left the county in 2007.”

“Inland economist John Husing…said the state’s finance figures suggest that people losing homes and jobs are moving out of state. This group also includes retirees, who Husing said are moving to places like Utah and Nevada because of the lower cost of living. ‘If they can’t afford a house here, how are they going to afford one in Los Angeles County?’ Husing said. ‘If they are moving out, they are moving to places that they can afford.’”

“Husing predicted the next housing boom would begin in 2012, when he believes homebuilding will resume. ‘That still is four years away,’ Husing said.”

“Those who try to predict the future in a sometimes unpredictable California economy aren’t immune to the subjects of their prognosticating. That includes the economists.”

“The California Building Industry Association, a statewide trade group that advocates on homebuilder issues, this week sent out an e-mail to the media containing this message: ‘We’re sending you this note to let you know that due to budget cuts, Alan Nevin will no longer be under contract with us as of the end of the year. We encourage you to continue contacting Alan for his insights into the marketplace, but in order to avoid confusion, please do not refer to him as CBIA’s chief economist in the future.’”

Bits Bucket For December 30, 2008

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December 29, 2008

Anything That Could Go Wrong Did Go Wrong

The Gazette Times reports from Oregon. “After a months-long struggle to move through the city’s planning department and overcome objections by wetlands advocates, Ashwood Preserve is up for sale. The 9.52-acre parcel, which became a test case for a provision which allows a land owner to build on property even if it is mostly covered by natural features, has been stymied by a building industry that was quiet all year. It’s representative of the plight of Corvallis builders, who never really got off the ground in 2008.”

“Residential building ground almost to a halt in 2008. Just 44 permits for new residential building have been issued this year, half the number approved in 2007. At the end of last year, Legend Homes in Corvallis was upbeat about its prospects here. In June, the company filed for Chapter 11 bankruptcy protection when creditors came calling.”

“The Oregon company’s Corvallis projects — Stoneybrook and Willamette Landing, both offering new homes priced between $250,000 and $400,000 — had been largely completed before the troubles in the housing market. Another project brokered by Legend, Witham Oaks, remains in the same limbo that stalled Ashwood Preserve.”

“John Faulconer, a mid-valley builder for 10 years, hung up his tool belt this year and now sells existing real estate full time. ‘I just sold my own home for $550,000,’ he said. ‘A year and a half ago I could have gotten $750,000. It makes me sick.’”

The Oregonian. “State regulators are investigating a Bend firm that recently filed for bankruptcy after its owners used millions of customer dollars to fund their own business ventures, allegedly without permission. Summit 1031 Exchange’s owners said this week that they were short more than half of the $27.8 million in cash it owed to clients. The company said its problems are a result of loans it made during the real estate boom to Inland Capital Corp., a company owned by the same people who own and run Summit. Inland Capital Corp. then lent the money to other individuals and companies.”

“‘This is just horrible,’ said John Tennant, a Portland landowner whose family is owed $1 million. ‘We’ve hired an attorney, and we’ll be filing a lawsuit.’”

“Summit specialized in 1031 tax-deferred exchanges, a type of real estate investment that allows investors to defer paying federal taxes on gains from property sales. The largely unregulated exchanges are tax-deferred as long as sellers quickly reinvest their proceeds in similar properties.”

“Danae Miller of Bend said she turned to Summit looking to trade her 34-acre cattle farm near Bend for something larger. Summit now owes her $750,000. ‘I don’t know how in our lifetime we could ever recoup that money,’ she said.”

“News of what happened has surprised investors and business partners who said that Summit’s principals had strong reputations in the field and community. ‘They were very well regarded,’ said Dave Chambers, an accountant in Lake Oswego who ran Summit’s local office. ‘These guys in Bend got really good at this. These guys got too successful.’”

“Bend tied Atlantic City as the most overvalued market in the country in a report from research firm IHS Global Insight and National City Corp. Longview, Wash., had the fifth most overvalued market, Portland sixth, Eugene 10th, Salem 14th, Medford 21st. The firm bases the overvalued rankings on interest rates, household incomes, population densities and historic price trends.”

“The report provides further evidence that the housing crisis — after rolling through Sun Belt and Rust Belt states - — is clobbering Northwest markets the worst.”

“A South Waterfront condo once owned by a former U.S. Bank fraud investigator now doing time for embezzlement has resold for a discount of about 40 percent. David A. Shelofsky bought the 18th floor condo in June 2006 for $1.6 million. The condo went into foreclosure, and principal broker Philip Higgins listed it for $979,900 for the bank. He says it’s now under contract for a little less than the list price.”

“Shelofsky pleaded guilty in October 2006 to pocketing $1.5 million of the money he recovered from people accused of defrauding U.S. Bank. An accountant found that $583,000 of embezzled money went to properties Shelofsky purchased, including this condo. Shelofsky was sentenced to 37 months in federal prison last March.”

“Established Oregon economists scoffed a year ago when a younger colleague with a relatively new crystal ball declared: ‘A recession is likely imminent.’ As it turns out, University of Oregon economist Tim Duy, and his index of economic indicators, was closer to the target than even he imagined. Construction crashed, following the burst of the nation’s speculative housing bubble. Related sectors, such as wood products, manufacturing and the financial industry, also plunged. Foreclosures increased.”

“‘Anything that could go wrong did go wrong,’ Duy said this past week.”

“Eugenio Aleman, Wells Fargo & Co. senior economist, says federal monetary policy — injecting hundreds of billions of dollars into the economy through the financial sector — is not helping those who need it the most. ‘It will not help those who are struggling to make ends meet, or have lost their jobs or who may soon lose them,’ Aleman said, ‘because no financial institution is going to lend them money to buy a home, no matter what the interest rate is.’”

The Peninsula Daily News from Washington. “Jefferson County’s assessor expects to hear some noise when his office sends out property tax assessment revaluation notices next August for the city of Port Townsend, just as he did after assessments for Chimacum and Port Ludlow came out earlier this year. The Port Townsend notices, which will be for 2010 taxes, will show average increases of 20 percent to 25 percent, Jack Westerman III said.”

“‘They’re going to say ‘Jack, you are out of your mind,’ said Westerman, who at 30 years in elected office is the state’s longest-standing county assessor.”

“The countywide taxable value has more than doubled since 1997 to 4.7 billion in 2007, Westerman said, with about half of that being new construction. ‘Port Ludlow is an area that has more turnover with so many retirees,’ Westerman explained.”

“Then there was the spike in Port Ludlow residential construction during 2005-2006 that glutted the market. ‘My biggest problem right now for me is the areas in Port Ludlow,’ he said.”

“This year, Westerman’s office put together data for the Port Townsend revaluation cycle. The cycle is from January 2005 to January 2009. ‘If you bought at the peak of the market in late ‘06 your value hasn’t done much but go down 15 percent,’ he said.”

“That, however, followed two years that each had 20 percent market-value increases in Port Townsend, he said.”

“Westerman points out that although Port Townsend-area homes sales have dramatically slowed since 2006, prices have not necessarily declined at the same pace. In fact, he said, many are selling for more than their 2005 assessed value. For example, Westerman said, an uptown Port Townsend home with a county assessed value of $290,000 in 2005 recently sold for $615,000.”

“Westerman produced documentation that shows his office’s assessed values from July 11, 2008, to mid-September were under sale prices by as much as 35 percent at the low end, and by 99.2 percent at most for the Port Townsend School District revaluation area, which includes Cape George, Kala Point, Discovery Bay and the West End. ‘There are fewer transactions to make decisions on, which makes it a little more difficult for anyone involved . . . It’s a tough time to figure out your fair market value,’ Westerman said.”

The Seattle Times from Washington. “Summing up the 2008 housing market, Glenn Crellin, was succinct: ‘Challenging at best,’ said the director of the Washington Center for Real Estate Research at Washington State University. ‘We clearly have a situation where consumers have exited the market, rightly or wrongly, on the presumption that housing prices are going to fall precipitously and they’ll be able to get tremendous bargains if they wait.’”

“As 2007 ended, Mike Scott, of Dupre + Scott Apartment Advisors, said renters should see rents rise and stiffer competition for apartments. The reasons: Tight mortgage lending was keeping many renters from becoming homeowners. Plus, many would-be buyers were taking a wait-and-see attitude toward home prices.”

“Well, some of that happened. Central Puget Sound rents climbed 7 percent in the past year, Scott said. Going forward, it would seem like the same factors Scott cited for this year would be in play again for 2009. But the apartment situation has changed considerably. For 2009 and 2010, Scott expects that vacancies will grow, but rents won’t.”

“However, the economy is deteriorating so rapidly that it’s hard to say exactly what that means. In September, Scott forecast that vacancies would reach almost 6 percent by early 2010. Then this month, he revised that upward to 7.3 percent.”

“Job losses decrease apartment demand because renters double up — one reason vacancies are expected to climb. The other big one is an increase in apartment construction. Scott says 2,620 units opened this year in 20-unit or larger buildings in King, Pierce and Snohomish counties. That’s about 500 more than had been predicted.”

“Currently, 8,900 units are under construction. Additionally, some buildings planned as condominiums may become apartments instead, and some apartments formerly converted to condos are being reconverted into apartments.”

The Seattle PI from Washington. “No surprise: Many Seattle-area real estate experts say the market slowdown was the biggest local real estate story of 2008. But there’s a lot less agreement about what to expect from 2009.”

“The median house price actually topped out at $481,000 in King County in July 2007 and $501,000 in Seattle in August. Last month, the medians were $415,000 in Seattle and $395,000 countywide, down 17.2 percent and 17.9 percent, respectively, from their peaks.”

“Spencer Rascoff, chief financial officer at Zillow, the Seattle-based online real estate site, said that given that nearly 14 percent of area homes have mortgages for more than they’re worth, massive job losses would bring another wave of foreclosures, stalling any recovery.”

“Unemployment was higher in 2002, but the housing market was strong then because people felt comfortable buying, said Bruce Williams, CEO of HomeStreet Bank. ‘Until people have confidence the economy is not in free fall, home sales will be down,’ he said.”

“Sean Hyatt, managing director of the Bellevue office of national apartment developer Trammell Crow Residential, focused on the mayhem itself. ‘The fact that this downturn is so multifaceted, with bad news coming from every angle, which in turn is leading us into one of the deepest recessions on record, is the most significant story,’ he said. ‘The failure of WaMu, the disappearance of the condo market, the commercial markets grinding to a halt, how quickly Seattle proved it wasn’t immune, again, and caught up with the national recession, and all the other negative events are just symptoms.’”

“The real shock came in August 2007, when mortgage lenders significantly tightened their standards. Declines in prices and sales continued into this year. The area showed signs of possible stabilization this summer, with pending sales actually up from a year earlier in September. But nationwide economic turmoil upended that, and pending sales dropped in November by more than 30 percent from a year earlier.”

“September’s turmoil, of course, included federal regulators seizing Seattle-based Washington Mutual Inc. and selling its branches, deposits and loans to New York-based JPMorgan Chase — the largest bank failure in U.S. history.”

“That was the biggest real estate story of the year, according to Richard Hagar, a Mercer Island appraiser who teaches anti-fraud classes and has been warning that lenders, including Washington Mutual, failed to ensure they made good loans. ‘They are the poster child of what is happening at many banks,’ Hagar said. ‘And all of the problems at WaMu are still going on right now today.’”

The New York Times. “As a supervisor at a Washington Mutual mortgage processing center, John D. Parsons was accustomed to seeing baby sitters claiming salaries worthy of college presidents, and schoolteachers with incomes rivaling stockbrokers’. He rarely questioned them. A real estate frenzy was under way and WaMu, as his bank was known, was all about saying yes.”

“Yet even by WaMu’s relaxed standards, one mortgage four years ago raised eyebrows. The borrower was claiming a six-figure income and an unusual profession: mariachi singer.”

“Parsons could not verify the singer’s income, so he had him photographed in front of his home dressed in his mariachi outfit. The photo went into a WaMu file. Approved. ‘I’d lie if I said every piece of documentation was properly signed and dated,’ said Parsons, speaking through wire-reinforced glass at a California prison near here, where he is serving 16 months for theft after his fourth arrest — all involving drugs.”

“While Parsons, whose incarceration is not related to his work for WaMu, oversaw a team screening mortgage applications, he was snorting methamphetamine daily, he said. ‘In our world, it was tolerated,’ said Sherri Zaback, who worked for Parsons and recalls seeing drug paraphernalia on his desk. ‘Everybody said, ‘He gets the job done.’”

“‘”It was the Wild West,’ said Steven M. Knobel, a founder of an appraisal company that did business with WaMu until 2007. ‘If you were alive, they would give you a loan. Actually, I think if you were dead, they would still give you a loan.’”

“The ultimate supervisor at WaMu was Kerry K. Killinger, who joined the company in 1983 and became chief executive in 1990. An investment analyst by training, he was attuned to Wall Street’s hunger for growth. Between late 1996 and early 2002, he transformed WaMu into the nation’s sixth-largest bank through a series of acquisitions.”

“A key deal came in 1999, with the purchase of Long Beach Financial, a California lender specializing in subprime mortgages, loans extended to borrowers with troubled credit. WaMu underscored its eagerness to lend with an advertising campaign introduced during the 2003 Academy Awards: ‘The Power of Yes.’ No mere advertising pitch, this was also the mantra inside the bank, underwriters said.”

“‘WaMu came out with that slogan, and that was what we had to live by,’ Zaback said. ‘We joked about it a lot.’ A file would get marked problematic and then somehow get approved. ‘We’d say: ‘OK! The power of yes.’”

Bits Bucket For December 29, 2008

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December 28, 2008

There Was So Much Money To Be Made

The Atlanta Journal Constitution reports from Georgia. “State regulators issued a prescient warning to Georgia banks three years ago. If they kept lending mostly to real estate developers, the banks were told, they risked huge losses, or even failure, if the housing bubble burst. The warning, however, was just that. Coming from the Georgia Department of Banking and Finance, it carried no weight. Many banks merely broadened their pool of borrowers to include more developers. Others disregarded the admonition altogether.”

“State officials say they knew that certain banks were vulnerable to failure. Some had devoted 80 percent or even more of their loans to real estate development, by its nature a speculative venture. Rob Braswell, the state banking commissioner attributes Georgia’s disproportionate number of bank failures to the explosion of new banks that accompanied the region’s housing boom.”

“Dozens of financial institutions formed in recent years —- 21 in 2006 alone —- as Georgia ended up with more banking companies than California, Florida or New York, among many other states. Many of these new banks were created by developers for developers. Few wrote mortgages for individual homeowners. Instead, their lending enabled the construction of entire new communities, many of them sprawling across the outer ring of Atlanta’s northern suburbs.”

“Braswell doesn’t fault the banks for following this business model. Housing prices, he said, were still increasing, despite nagging concerns about inflated values. ‘It was very difficult for many banks not to become overreliant on these loans,’ he said, ‘when there was so much money to be made.’”

The Pensacola News Journal from Florida. “From the devastation on Wall Street to the struggling mom-and-pop store on Main Street, the epitaph for 2008’s economic meltdown might well read: ‘They never saw it coming.’ Where were the politicians, the federal banking regulators and the jet-setting CEOs when Wall Street’s gravy train jumped the tracks?”

“‘Looking back at 2008, I think the speed with which it (the financial crisis) hit was maybe not shocking, but certainly the most surprising thing to me,’ Pensacola banker Tommy Tait said. ‘It made us look back and say, ‘Were we really asleep?’”

“University of West Florida economist Rick Harper, says that Pensacola’s housing inventory — like the nation’s — is fundamentally out of line with the underlying population dynamics. ‘We’ve had a huge overbuilding of the housing sector,’ Harper said. ‘There was just too much investment in residential structures. And the only way that’s going to get back into a demand-supply equilibrium so that prices can begin to appreciate, so that builders can begin to see there is a market out there, is when population catches up with the supply built. If we don’t stimulate population growth, based on our existing growth, it’s going to take 10 years or more to recover from this recession.’”

From Florida Today. “Melbourne officials estimate that one in every 10 homes is abandoned or has been foreclosed on. The properties are as diverse as a mobile home in Colony Park, which is on the north end of the island, to an unfinished $500,000 custom home less than a block from the barge canal. Its owners abandoned the unfinished house months ago, owing money to the building contractors as well as to the bank.”

“‘I’ve got a jungle surrounding my house,’ said Ed Hunter, who lives next door to an abandoned house on Merritt Island. ‘Could be a bobcat hiding back there.’”

The Naples News. “A few months ago, Park Shore beach was one of the only spots in Collier County that had showed resistance to price reductions over the past two years. ‘Park Shore was a bastion of price stickiness,’ said Ross McIntosh, founder of The Bidder’s Broker in Naples. The mantra, he said, seemed to be ‘if you want it you are going to have to pay my price because I’m not going to accept less.’”

“The median price for homes sold with the help of a Realtor in November fell to $194,000 in Collier County, excluding Marco Island, according to NABOR. That was down nearly 40 percent from $325,000 in the same month a year ago.”

“The seller of penthouse 102 paid the developer $4,350,000 for the unit and had nearly two years’ worth of carrying costs that he didn’t recover. ‘Effectively, the investors in that penthouse unit in Aria lost money,’ McIntosh said. ‘That is a new phenomenon on Park Shore beach. I think it’s a harbinger of future pricing behavior in Park Shore.’”

“Uncertainty remains for WCI Communities as the developer reaches the halfway point in its reorganization efforts. The Bonita Springs-based home builder, failing under the weight of about $2 billion in debt, filed for Chapter 11 bankruptcy protection in August.”

“Earlier this month, billionaire investor Carl Icahn and his affiliates dumped most of their WCI stock, about 6 million shares in exchange for two cents total. He had paid an average of about $16 a share in 2007. Also in 2007, Icahn had offered WCI $22 per share in a move to take over the builder. WCI rejected that offer.”

“‘I think it presented a tremendous loss for him and he decided to remove himself and look forward to taking a huge write-off on capital gains,’ Jack McCabe, CEO at Deerfield Beach-based McCabe Research and Consulting, said of the two-cent transaction.”

The St Petersburg Times. “High-profile developer Grady Pridgen and former NBA player Matt Geiger are delinquent in their property tax payments, both squeezed by the grinding recession. Three years ago, Geiger said, lots at his planned Bison Creek Estates project sold for $800,000. Now the former Miami Heat and Philadelphia 76ers player said there are no buyers, even though he has slashed prices by half.”

“‘It’s just tough on my company right now to make it,’ Geiger said. ‘I’m trying to bust my tail to do everything I can to move property.’”

The Sun Sentinel. “The lure of a big bargain continued to drive Broward County home sales in November. Buyers scooped up 507 existing homes, a 26 percent increase from a year ago, the Florida Association of Realtors said. Year-over-year sales have risen every month since July. Prices keep falling and now are what they were in 2003. The median price plummeted 34 percent last month, to $229,100 from $348,100 a year ago.”

“Broward’s condominium market is seeing a similar trend. November sales increased 3 percent from a year ago, while the median price slid 34 percent, to $109,400 from $166,700. Many of the homes and condos changing hands are distressed properties owned by lenders or desperate sellers.”

“‘At a certain point, prices get so low that people think they’re irresistible,’ said Brad Hunter, a housing analyst in West Palm Beach. ‘But in a sense, these increased sales is a sign of weakness in the housing market rather than a strength.’”

“Bob Tucker recently bought a five-bedroom South Florida house in foreclosure for $743,000, a $250,000 discount off market value in the neighborhood. Tucker said he spent $100,000 on renovations after the previous owners gutted the kitchen and damaged other parts of the home. Despite the hassle, including tough negotiations with the bank that owned the property, he’s glad he made the deal.”

“‘There were a lot of sleepless nights,’ said Tucker, a public relations director and the married father of four who moved here in April from Southern California. ‘But I think it’s a good investment because this is such a desirable area.’”

The Herald Tribune. “In 2007…Joe Long, a New Jersey entrepreneur, tried to raise $700 million to buy 1,500 homes from Southwest Florida builders and developers for about 70 cents on the dollar. But Long was unable to raise to the cash from hedge funds and other institutional investors. He got in the game much too early and was offering too much money for properties, real estate experts say.”

“In Southwest Florida, it is people like Elizabeth and Michael Thrasher, Michael Averbuch and Peter Arguelles who have started buying. The Thrashers have spent $11.6 million to buy seven properties on Anna Maria Island since April. Averbuch spent hundreds of thousands more to buy condos and raw land in North Port and Sarasota. Arguelles has paid $1.6 million to buy 19 houses in Sarasota and Manatee counties.”

“‘If you can buy houses where the cash flow more than covers the operating costs, why wouldn’t you buy?’ Arguelles said. ‘We are able to do this now. We can buy houses for less than the freakin’ cost of nails and wood. If you can buy dollars for dimes, then you should buy all you can.’”

” Joseph Kandel is eager to buy. The real estate firm he works for is seeing investors and end users close on 35 bank-owned properties every month and another 25 short sales, in which buyers negotiate with banks to buy properties for less than what banks are owed by the former owners. Kandel’s problem is money.”

“Though he bought and sold five properties for $440,000 more than he paid during the boom, his fortunes changed in the bust. He has defaulted on four loans totaling $2.4 million since the beginning of the year. But that apparently is not stopping him from going ahead with his public offering.”

“‘I was flipping and made a nice living for while, but I got caught with my pants down like everyone else,’ Kandel said. ‘The problem now is there is just too much inventory and not enough end users. So the same investors who were buying up properties during the boom are needed to help with the resurrection.’”

“In his registration statement, Kandel does not oversell his company’s prospects. He clearly points out there is a good chance 1st & 10 will have to punt. ‘Since the incorporation of 1st & 10 Properties, we have not generated revenues. With limited financial resources, we may not be able to continue as a going concern,’ the registration statement says.”

“Despite those very strong negatives, Kandel remains optimistic. ‘We’re at the bottom,’ he said. ‘Anyone who knows real estate knows this is a great time to get in.’”

“Four counties — Sarasota, Charlotte, Lee and Collier — are projected to account for more than 40 percent of the erosion in Florida’s tax base in 2007 and 2008. While the state’s tax base is projected to shrink by $120 billion, these four Southwest Florida counties will account for $52 billion of that hit.”

“The area relies on the more cyclical tourism and construction industries, which have sunk with the real estate market, said Sean Snaith, director of the University of Central Florida’s Institute for Economic Competitiveness. ‘So when the boom went bust, there was no safety net to fall back on,’ Snaith said.”

“While governments will struggle, it will be worse for homeowners, (consultant) Jack McCabe said. Southwest Florida suffered from ‘false appreciation’ during the boom, a mixture of speculation and real estate fraud, he said.”

“That led to the market being overbuilt and so many vacant or available properties that no one can predict when demand and supply will again be in balance. ‘People will be making high payments on values you may not see for years and years to come,’ McCabe said.”

“The historic drop in interest rates will help some people whose adjustable-rate mortgages are scheduled to reset in the near future, enabling them to remain in their homes and avoid foreclosure. John O’Neill, CEO of Sarasota-based Century Bank… and others noted that the rate drops have done nothing to address a fundamental stumbling block in the housing market: Most people who sought ARMs during the boom did so with the idea of refinancing or selling their homes before their mortgage rates reset to higher levels.”

“When the real estate market ended its historic climb with a swoon, many owners found they owed more on their houses than they were worth. They began to ask whether it made sense to keep making payments. ‘Half of the problem is interest rates and the other half is value,’ said Peter Lyddy, a mortgage broker with Gulf Coast Mortgages of Southwest Florida. ‘If people don’t have the wherewithal to stay with the market and wait for home values to rise, then a drop in interest rates is not going to help them.’”

“The problem with the adjustable rate mortgages offered during the boom is that they were issued to people with more of an investor mentality than a homeowner mentality, said Jack McCabe. Those people were expecting their homes to appreciate in value. When the opposite happened, they wanted out. ‘Many will default regardless of how low rates go,’ McCabe said.”

“The fundamental attitudes toward home ownership have changed and far more people are willing to default on their mortgages than they were ten years ago, O’Neill said. ‘There is not as much sentimental attachment to a home,’ he said. ‘People see it more as an investment, and if the investment has gone bad, they are willing to walk.’”

Bits Bucket For December 28, 2008

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December 27, 2008

Those Order Takers Are Now Gone In California

The Ventura County Star reports from California. “According to Bill Watkins, executive director of the UC Santa Barbara Economic Forecast Project…a foreclosed home in California sells for $200,000 less than a traditional home. Until foreclosures are worked through the market, ‘we don’t think the real estate market can clean itself up,’ Watkins said. ‘There’s no reason for a big turnaround in the market — the economy is weak, which is going to depress demand, and foreclosures are going to provide excess supply for months.’”

“Watkins projected foreclosures to peak next summer, a result of the weak economy and resetting interest rates on adjustable rate mortgages. ‘Next summer is going to be bloody,’ he said.”

“Michael Greaves has two words when asked to describe the real estate market. ‘It’s dead,’ the Ventura real estate investor said. ‘This whole year has been a joke.’”

“Greaves said he doesn’t think prices will drop much more than they already have. But if prices continue plunging, he said he’d be able to weather the storm. He paid cash for a five-bedroom house he bought in Ventura eight months ago that he fixed up and listed for sale by owner three months ago for $435,000.”

“He hasn’t had a ton of calls, but there’s been some interest among investors and ‘ridiculous’ offers as low as $280,000. As much as he’d like to snatch up more bargains, he said, he can’t because his money is tied up in the Ventura property.”

“‘I’ve thrown in the towel until next year, just like everyone else,’ Greaves said.”

The Union Tribune. “Carlsbad home builder Barratt American has filed for bankruptcy reorganization, derailed by the housing bust and a dispute with its key lender, Bank of America. Barratt American and three sister companies, including its mortgage lending arm, sought protection from creditors with a Chapter 11 filing on Christmas Eve.”

“Two days before Barratt sought protection, Bank of America foreclosed on seven of Barratt’s current subdivisions or condo projects. The company is believed to be the largest locally based builder to file for bankruptcy in the current housing slump. Barratt is an example of a builder that over-committed at the peak of the housing boom, said Gary London of the London Group, a real estate consulting firm.”

“‘They had a lot of projects,’ London said. ‘Ultimately, the big guys might not survive (this housing downturn.) The boutique companies are pretty much going to get wiped out.’”

The North County Times. “North County’s economy was shaky at the beginning of 2008, and entire sectors are in free fall as the year nears its end. The sharp turn downward, coming after a decadelong boom, may have seemed unthinkable to real estate agents, car dealers and furniture store owners whose customers had spent beyond their incomes for several years.’

“But vanishing home equity slowed spending in 2007, and tighter credit squeezed it in 2008. The ranks of the unemployed have swelled by 32,000 people, a number that includes self-employed people, recent graduates and others who have thrown themselves into the labor pool without finding work.”

“Economist Christopher Thornberg said such results had become inevitable by 2004, as home prices grew to four, then five and six times as large as family incomes. Lenders inevitably had to raise their standards, and when they did so this year, the losses were large.”

“‘It’s not a credit crisis,’ Thornberg said. ‘It’s credit withdrawal. All the debt junkies have been yanked off the debt needle, and they’re having withdrawal.’”

The Voice of San Diego. “Nearly 30 percent of homes in San Diego County with a mortgage are worth less than their owners owe on their mortgage, according to new data. Local real estate analyst Gary London said the underwater statistic was somewhat irrelevant in the market — a number that only matters if an underwater homeowner decides to sell.”

“Still, continuing economic strife and a rising unemployment rate could put more people in a position of distress. For all other homeowners, he said, ‘This is the time in the market when you keep your blinders on.’”

“‘If you sell right now you’re by definition either distressed or stupid,’ London said.”

The Santa Cruz Sentinel. “As many as one in 10 homeowners in the county didn’t pay property taxes by this month’s deadline, the highest level of delinquency in years and a sign that the toll of the nation’s housing crisis is likely to grow. ‘When you see people making a choice to not pay taxes, you know they’re in trouble,’ said Ken Cole, recently named executive director of the county’s Housing Authority. ‘It’s a shame that there’s such a high percentage of people on thin ice.’”

“‘We don’t know to what degree the problem is mortgage-related or job loss, but those are the two likely scenarios,’ Cole said. ‘I would imagine that the problem is going to continue to get worse in the near-term.’”

“Auditor-Controller Mary Jo Walker said the level of unpaid taxes was higher in South County, where most new housing has been built. The bulk of those who haven’t paid their taxes, Walker suspects, bought their homes in recent years when housing values were at record highs.”

“Treasurer-Tax Collector Fred Keeley said housing problems are bad locally, but not as bad as some areas. ‘We’re certainly feeling the effects of the bursting of the housing bubble … but coastal counties are doing a bit better than when you move inland,’ Keeley said.”

Bay Area Newsgroup. “It has got even harder for low- and moderate-income first-time home buyers to find an affordable loan, thanks to the state’s budget problems. The California Housing Finance Agency has temporarily suspended popular programs that help people get into homes through 30-year, fixed-rate loans and down payment help.”

“The programs were suspended in response to action taken last Wednesday by the Pooled Money Investment Board, which halted nearly $4 billion in state loans for various infrastructure programs. CalHFA also suspended a program that helps teachers and school employees buy homes and local governments and non-profit housing groups provide mortgages to qualified borrowers.”

“‘The state basically shut down the down payment assistance program,’ said Ken Giebel, CalHFA’s director of marketing. ‘It hurts a lot. It’s really a state budget issue and we just had to react to that.’”

“‘It will have a huge impact on the number of first-time home buyers that qualify to buy,’ said Leanne Odom, a mortgage professional with Prospect Mortgage in Concord, who estimates that in the last two years most of her loan volume has been linked to CalHFA programs. Odom said CalHFA lending programs are designed to help ‘the first time buyer who has good credit but just needs help with the down payment. It’s really one of the last programs that offer special financing for first-time buyers.’”

The Fresno Bee. “The incoming president of the Fresno Association of Realtors says 2009 will be similar to 2008, with houses becoming more affordable and the local real estate market continuing its move toward equilibrium. As the market turned from a seller’s to a buyer’s, people had trouble adjusting. Jared Martin, who succeeds Don Scordino on Jan. 1, talked about a big ‘disconnect’ in 2006 and 2007 between sellers who wouldn’t drop prices to match the decline and buyers who assumed values were lower than they were.”

“‘The sellers were up here,’ Martin said raising his hand, ‘and the buyers were down here,’ he added, lowering his hand.”

“The association has 2,872 members, down from 3,500 in 2006. Martin and Scordino both say the tougher market is weeding out inexperienced and weaker agents. ‘Real estate agents have to go back to work,’ Martin said. ‘We are sales people, not order takers. In ‘04 through ‘06, we were order takers. Those order takers are now gone.’”

The Sacramento Bee. “Ruben Ramos, owner of a Marysville real estate office, got attention in real estate circles this week after explaining in Sunday’s Bee how he encourages troubled borrowers to walk away from their homes. His comments – during a real estate round table with three other panelists – went off like a bomb in an industry that constantly tells people to hang in and try to save their homes.”

“‘It’s not the right thing to do. I wonder if this is what we want taught in our colleges, to defraud lenders,’ said retired Sacramento homeowner John Lewis.”

“Leigh Rutledge, a Sacramento real estate agent, said, ‘There was part of me that thought The Bee shouldn’t have printed it. The other part is that as a Realtor I’m incensed that this guy … that this is what people think of us. It’s not how most Realtors feel.’”

“No apologies, says Ramos. ‘If people don’t think it’s a reality, they better wake up.’”

“To be fair to Ramos, another dialogue on the topic was edited out for space. He talked about working first with banks to get loan modifications. If the bank is willing, give it a try, he said. If not, leave. ‘If I see that the modification only benefits the lender by keeping that borrower on the hook and slamming the door harder in their face two or three years further down the road, I’m going to be the first one to say, ‘Walk away.’”

The Pasadena Star News. “Losing money is bad enough. But it’s worse when the loss occurs because your bank failed to inform you that your deposits exceeded the federally insured limit.”

“That’s what Fran Quittel says happened to her as a customer of IndyMac Federal Bank. Quittel, who had two business accounts with the Pasadena-based lender - then known as IndyMac Bancorp - said the bank aggregated her accounts together without telling her, putting her over the $100,000 cap that was then insured by the Federal Deposit Insurance Corp.”

“As a result, she lost $17,500 when IndyMac collapsed and was taken over by the FDIC in July, re-emerging as IndyMac Federal Bank. ‘I felt like I had been hit by a two-by-four … I went to bed for a week,’ the Emeryville resident said.”

“FDIC spokesman Andrew Gray said there is no statutory mandate that requires the FDIC to inform depositors when their deposits exceed the insured limit, which has since been hiked to $250,000 for regular accounts. IndyMac spokesman Evan Wagner agreed with Gray. ‘I don’t know of any bank that informs customers when their funds are non-insured,’ he said.”

“Quittel also claims that FDIC spokeswoman Sheila C. Bair knew IndyMac was engaging in increasingly ‘risky loans’ but failed to act.”

“Wagner disagreed. ‘I don’t think you can say that IndyMac’s loans were becoming increasingly risky … because IndyMac’s loans were almost entirely plain vanilla, conforming loans in the year before its failure,’ he said.”

Creating A True Wealth List

Readers suggested a topic on what constitutes wealth. “For holiday discussions, I wouldn’t mind creating a ‘true wealth’ list. I’ve just recovered from 6 weeks of constant pain due to a back injury. Good health and a pain-free life (which I am once again enjoying) are definitely at the top of my wealth meter because there is no amount of money I would be willing to take in exchange for chronic pain.”

“Second on my list is probably my dogs smiling at me when I come home. What’s yours? (And be aware I may steal ideas to create a list for my clients)”

A reply, “True wealth? 1. Good health, for me and for those around me. 2. Close, meaningful, lasting friendships.”

Another said, “True Wealth List: keeping your teeth, a warm place to sleep, food on the table and
plenty of hugs.”

One had this list, “The Wealth List: a dry cigarette, a cup of coffee and nobody shooting at you.”

“The rest is all gravy. ‘Live forever…or die in the attempt’ - Catch-22.”

To which one added, “And don’t buy any real estate, no matter what the broker says.”

Bits Bucket For December 27, 2008

Please visit the HBB Forum. Post off-topic ideas, links and Craigslist finds here.

December 26, 2008

Bits Bucket For December 26, 2008

Please visit the HBB Forum. Post off-topic ideas, links and Craigslist finds here.