The Housing Bubble

A report from the Oregonian. “Southeast Francesca Lane cuts up and around a hillside to reveal the boom-time promise of Happy Valley circa 2006. Young families rolled in to snap up $600,000, stone-fronted homes with Mount Hood views. Francesca Lane circa 2008 isn’t dreamy any longer. One of every five homes or lots on the street has fallen into foreclosure since the neighborhood sprang up three years ago. The king of Happy Valley homebuilders, Roger Pollock and his Buena Vista Custom Homes, faces a foreclosure lawsuit on two Francesca Lane lots. Dick and Aloma Anderson, a retired couple from Clark County, gambled that they could flip a Francesca Lane home for a quick profit. Now, their retirement won’t be quite as golden.”

“The couple had never bought an investment property. But by 2006, flipping houses had become so common nationwide that TV networks celebrated it with reality shows. Aloma was certain they could buy a home, resell it for a hefty profit and pad their retirement. Aloma says the salesman told them the home would be worth as much as $1 million by the time it was finished in the summer. They closed the deal in August 2006 on the four-bedroom, 5,000-square-foot home for $633,865. It was a steal, they figured, at $125 a square foot.”

“Within weeks, Aloma put the house on Craigslist for $799,000. She planned to sell it herself and made the 35-minute drive most Saturdays to host open houses. She’d stay for seven hours and usually saw no one. She lowered the price to $749,000. Even after a year, she still had no offer. The Andersons refinanced their Hazel Dell home twice to raise cash for the Happy Valley mortgage. In late 2007, they raided their IRA.”

“Pollock expected things would get much worse, and he cut his losses. He announced an auction in December 2007 to sell 230 homes, including some on Francesca Lane, at bargain prices. ‘When he did that to us, it killed us,’ Aloma says.”

“She mailed her last payment in January, and the lender declared the mortgage in default three months later. Staring at a loan far higher than the home’s value, the Andersons faced losing the home to the bank. A real estate broker found the Andersons a bargain hunter. The lender approved the sale for $515,000. That’s $123,000 less than it had loaned the Andersons 20 months earlier. ”

“The Andersons never spent a night in the Happy Valley money pit. But the mortgage, fees and taxes cost them close to $100,000. ”I saw dollar signs,’ she says.”

“The couple would like to sell their Hazel Dell home to move closer to family in the Midwest. But the Clark County market is about as bad as Happy Valley’s. Their builder, Pacific Lifestyle Homes, is now bankrupt. The home was appraised for $465,000 last year. Now, she’d take $379,000. After all this mess, the Andersons had to tell their children they can’t help out with money any longer. ‘That’s a hard thing to tell them,’ Aloma says. ‘We don’t have it anymore.’”

From KTVZ in Oregon. “A national study claims the Bend area still has the most ‘extremely overvalued’ housing market in the country - 43 percent overvalued, as a matter of fact. ‘I guess I have a little problem with this whole overvalued interpretation,’ said Cal Gabert, residential manager for Bratton Appraisal Services in Bend. ‘I’ve heard we’re overvalued before, but we’re still somewhat of a resort community. We have a lot to offer that isn’t available in other places.’”

“‘Bend still is right now a good value,’ Gabert said Friday. Still, Gabert said, ‘If you move to Bend, you’d better have employment figured out. A lot of retired people move here,’ and to Gabert’s way of thinking, Bend homes are becoming more of a value all the time.”

The Bend Bulletin from Oregon. “Central Oregon’s building permits, seasonally adjusted, reached at least a 10-year low in the second quarter with 27 building permits filed each month from April through June. At the peak of the housing boom in the third quarter of 2005, an average of more than 400 permits were issued each month, according to the Central Oregon Business Index.”

“Smaller contractors that operate on word of mouth for new business are getting hit harder when it’s time to bid against larger construction firms, sometimes from outside the region, said Dave Jasper, a project manager for Havniear Construction, which has operated in Central Oregon since 1978.”

“‘Everything that becomes available goes out in the open market for bidding,’ Jasper said. ‘A lot of guys are frothing at the mouth looking for stuff to do.’”

The Seattle PI from Washington. “Seattle’s economy is basically healthy, but its real estate market is in decline, with no prospects for a quick recovery, said a panel of experts at a breakfast meeting Friday. ‘When we look at Seattle’s commercial real estate outlook — duh, it’s deteriorating,’ leadoff speaker David Legeay, a KeyBank senior vice president, told 500 real estate professionals and investors.”

“‘I think you can expect to see a continuing, steepening decline in opportunities here in Seattle over the coming months. You’re going to take your lumps just like everyone else has,’ the Cleveland resident said.”

“Matthew Gardner, a principal with Gardner/Johnson LLC, predicted ‘a tsunami of new apartments coming online in 2009 in Seattle’ — about 6,600 units, with 8,000 more in 2010. ‘Do we need it all? Ultimately, yes. Do we need it all in 2009? Oh, no, definitely not,’ Gardner said. ‘It’s going to be rough here next year’ for apartment owners, though tenants will have a wide choice.”

“As for condominiums, would-be buyers are holding off because they think the units are too expensive or they can’t get financing, he said. ‘Housing affordability is still a big, big issue,’ he said.”

The Olympian from Washington. “The Thurston County housing market returned to a familiar pattern last month as home sales, median prices and inventory levels all fell from November 2007 to November 2008, according to Northwest Multiple Listing Service data. Home sales fell again in November because prospective buyers got scared off by another wave of poor national economic news, said Bill Hutchinson, president of the Thurston County Realtors Association.”

“‘It has really caused people to think again,’ he said.”

“Broker Jeff Crandell said he thinks many buyers are watching for when the market hits bottom before making a purchase, a practice he likened to ‘trying to walk in the fog.’”

“The typical buyer today is someone who doesn’t first have to sell a house in order to buy one, such as a first-time buyer, a repeat buyer returning to the housing market or an investor, Hutchinson said. Right now the market is strongest for homes selling under $250,000 and weaker between $300,000 and $500,000, Hutchinson said.”

“But Crandell added, ‘If you’re in the market for a luxury home, they are really dealing on those homes.’”

The Canada Newswire. “According to the latest housing report released today by RBC Economics, British Columbia’s housing affordability conditions have started to improve in that last two quarters but home ownership costs are still the most inflated of all provinces.”

“‘The situation is unraveling fast in British Columbia,’ said Robert Hogue, senior economist, RBC. ‘After extremely tight conditions built up during the boom and drove home prices sky high, the province’s housing markets are now entering a correction phase that will see prices reverse recent gains, with greater affordability being restored.’”

“In Vancouver, homeownership costs remain the highest in the country. Despite price declines since the first quarter of 2008, home prices are roughly double the national average for most housing types, with standard condos the lone exception at only 70 per cent above average. With the median family income estimated to exceed the Canadian norm by only eight per cent, and qualifying incomes roughly at more than $150,000 for a standard two-storey and $135,000 for a detached bungalow, the vast majority of Vancouver families are effectively shut out of those market segments.”

“The condo segment remains the only option for many, as homeownership costs are not as steep, the RBC report said.”

BC Local News in Canada. “Home prices in Metro Vancouver headed in the same direction as the stock markets in November: down. Real estate prices lurched down another four to five per cent last month, according to the Real Estate Board of Greater Vancouver.”

“The benchmark prices of a single detached house is now down 13.6 per cent since May to $666,500. In the Fraser Valley, real estate is off six to seven per cent since May. ‘The local real estate market is not immune to the current economic challenges globally,’ said Dave Watt, president of the Greater Vancouver board.”

“The more expensive suburbs in the region is where prices have plunged most. Condos in West Vancouver and White Rock are now both down 20 per cent from a year ago, while the median house in White Rock is off 25 per cent. Detached houses and attached duplexes or townhouses on Vancouver’s west side are down about 19 per cent from the same time in 2007. Condos and houses in North Vancouver are also down 12 to 14 per cent.”

“People willing to buy are scarce. Sales were down 70 per cent in Metro Vancouver from a year earlier and Fraser Valley Real Estate Board sales were down 62 per cent.”

“Watt said more disciplined mortgage lending here has kept Canadian housing prices much more stable than in the U.S. ‘Times of turmoil, from which we always emerge, offer excellent opportunities to buy quality real estate,’ he said.”

From Canwest News. “RBC’s third-quarter housing report was issued amid news from Canada Mortgage and Housing Corp. that housing construction starts took a larger-than-expected dive in November to seven-year low of 172,000 units, and a warning of continued weakness through the next year.”

“Regionally, the cost of carrying a detached bungalow ranged from a high of 69.7 per cent of income in British Columbia to a low of 35.4 per cent in Atlantic Canada. Among a selection of major cities, the range was from a high of 74.8 per cent in Vancouver to a low of 40.4 per cent in Montreal with Toronto at 53.3 per cent, Calgary 47.3 per cent, and Ottawa 43.3 per cent.”

“While the economic downturn has lowered prices it also threatens to undercut incomes, the report notes.”

“‘At the end of 2007 the red-hot Alberta housing market began to slide, followed by British Columbia in early 2008, and now Saskatchewan and Ontario have joined the weakening trend,’ it said, adding that most of the market corrections taking place in British Columbia, Alberta and Saskatchewan can be traced to very poor affordability conditions.”

The Canadian Press. “The falling loonie hasn’t stopped Canadians from shopping for bargain real estate in the United States as housing prices continue to drop, particularly in sun destinations such as Florida and Arizona. Recent statistics show nearly one-quarter of all international home buyers in the U.S. are Canadians, which is more than double a year ago, and twice as much as the next-largest foreign owner, the United Kingdom.”

“While the price is right, experts warn potential buyers to consider the extra costs associated with such an investment, from taxes to travel. Meantime, U.S. housing prices keep falling to levels not seen since early 2004.”

“Analysts say the market has yet to hit bottom as foreclosures and unemployment in the U.S. grows, causing demand and prices to keep dropping. ‘There is still massive amounts of inventory,’ says Scotiabank economist Adrienne Warren.”

“Brian Ellis, president of Florida Home Finders of Canada, says the investment interest hasn’t wavered too much recently, despite the dollar’s drop from parity to about 80 cents US in recent months. That’s because of the bargains, Ellis says. ‘Homes that were years ago selling for $600,000 or $700,000 are now selling for $200,000 or $250,000,’ says Ellis.”

The Daily News Miner from Alaska. “Emily Sousa said the landscape for renters seems to have changed in Fairbanks. When she and a roommate looked for a two-bedroom apartment in 2006, there was nothing there. ‘We ended up 20 miles out of town in a place with little insulation’ for two months during the search, said Sousa, then an undergraduate at the University of Alaska Fairbanks.”

“Sousa is about to start work on a master’s degree. Once again, she and a friend are looking for a two-bedroom place and have found themselves in a seemingly completely different rental market. ‘There’s a lot of two-bedroom places out there,’ she said Thursday. ‘They’re not necessarily a lot of what I’m looking for, but they’re there.’”

“The figures back up Sousa’s impression: The number of vacant apartments in the Fairbanks area is more than 30 percent greater last fall’s figures, according to reports from property management firms. Twelve percent of the units at Midtown Apartments are vacant, according to Stephen Enochs of Senek Property Management. The company also has more than a dozen cabins unfilled, an ‘unusually high’ number for this time of year.”

“‘I am not sure what is going on, but there are definitely a number of properties on the market and they are not moving,’ he wrote Thursday in an e-mail to the Daily News-Miner.”

“Phyllis Enoch, a manager for Northern Homes, said a few of the vacancies she’s seen were due to prospective home-sellers who got tired of watching housing prices fall and decided to enter the landlord business instead. ‘It opens up the single-family home market, as far as (rentals) available out there,’ Enoch said.”

The Anchorage Daily News from Alaska. “We’re beginning to see some worrying signs that the recession gripping the rest of the country eventually could bite us here. Among the indicators: rising unemployment, mounting home foreclosures and high credit-card debt.”

“Beyond this, brows are beginning to furrow over the precipitous decline in oil prices. Oil revenue pays for most of the cost of state government and is a vital fuel for the entire Alaska economy. On Friday, Alaska crude oil closed at $35.61, a far cry from the peak of $144 in early July.”

“And here’s something else: Investment troubles on faraway Wall Street have done a number on the state’s main savings account, the Alaska Permanent Fund, which now has a market value of less than $28 billion, having lost about $9 billion over the past four months.”

“Unemployment in Alaska took a startling jump in October, up to 7.4 percent from 6.7 percent the prior month. The jump is the largest Dan Robinson, an economist with the Alaska Department of Labor, can ever remember seeing, and it’s the first time since February 2005 that the state’s unemployment rate has cracked 7 percent.”

“After the exhilarating surge through most of this decade, the average sales value of single-family houses in Anchorage has hit a plateau at about $328,000. Richard Ullstrom, an Anchorage foreclosure attorney, said his law firm handles many of the state’s foreclosures, with the typical client being a financial institution such as a bank or mortgage lender looking to recoup its money.”

“Ullstrom said his firm is handling more foreclosures, but still not even half the number seen in Alaska’s late-1980s real estate crash. Why are foreclosures on the rise? Ullstrom attributes much of it not to a recession but to overexuberant real estate investors bailing on bad bets.”

“‘Some people got sold on the idea of investing in real estate back when things were going well,’ he said. ‘What we’re seeing now is, some little real estate empires are crumbling.’”

The Des Moines Register reports from Iowa. “Deb Baker believes she’s one of about 31,600 Iowa homeowners whose mortgage is more than the home’s value - a situation that could hinder her ability to refinance her unaffordable loan or to sell her home. ‘You hate to lose what you put into your home,’ said Baker, who’s working with her lender to lower the payment on what she believes is a flawed mortgage. ‘I’m going to do what I have to to make it work. Paying my mortgage is my first priority.’”

“Patrick Madigan, an Iowa assistant attorney general, said the state also experienced ‘a fair number’ of the inflated appraisals that accompanied the subprime-loan boom now causing foreclosures throughout the nation. ‘Mortgage brokers and subprime lenders like Ameriquest would go to existing homeowners and pitch debt consolidation financing’ with the promise of helping homeowners save money, Madigan said.”

“‘Unfortunately, many of the homes didn’t have the value to support rolling all of that debt into the mortgage. So, these brokers would align themselves with unscrupulous appraisers’ who would produce an inflated assessment, he said. ‘People were told they were OK. … But these appraisals weren’t valid. It was a lie.’”

“‘People were underwater from Day One - the day they signed the loan agreement,’ said Madigan, who added that it’s difficult to know how many borrowers received bad appraisals.”

“When Baker lost her nursing job eight months later and found a new job that paid half as much, she investigated getting her monthly payment lowered. That’s when she discovered she paid $21,000 more than Polk County has assessed the home, at $78,000. Baker said the appraiser used by her mortgage broker valued the house exactly at the amount she offered. The same was true of the loans her sister and friend received through the same broker, who is no longer in business.”

“Baker is working…to see if she can get her current lender to modify her loan - lower the private mortgage insurance payment and reduce her interest rate and principal. If she’s unsuccessful, Baker will try to refinance her mortgage next spring. She hopes improvements - a new garage, carpeting and drywall - will boost the home’s value enough to support a new loan.”

“Until then, Baker said she will forget about seeing first-run movies, buying new clothes and traveling to ensure her mortgage is paid. ‘I’ll just keep cutting back until I figure out something,’ she said.”

The Press Citizen from Iowa. “The controversial Lytham Condominiums project calls for 31 units to be built on a 9.5-acre site. Contractors have been doing demolition, excavation and grading since the second week of October. Construction is slated to begin in April or May 2009.”

“Developer Jeff Hendrickson said he isn’t concerned about the struggling housing market. He said there are already deposits down on four homes. ‘The economy is always a concern, but I feel that this project is well-positioned in the market,’ he said. ‘Our customer will probably be diversified financially with a longer-term perspective.’”

“The condominiums will range from 2,665 to 3,675 square feet. Interiors of the units will feature two fireplaces, hardwood floors, high-end cabinetry, granite countertops and wet bars. Prices for the condominiums will range from $529,000 to $599,000.”

The Kansas City Star on Missouri. “In a market brimming with houses for sale, several dozen stood out Saturday — big, yellow auction signs touting them as a potential bonanza for Kansas City area bargain hunters. Harry Falk, 28, a recent transplant from Sacramento, Calif., was among those kicking the tires of what is expected to be more than 75 foreclosed houses on the Missouri side of the metro and outlying counties that will be auctioned Monday evening.”

“The house Falk was looking over is typical of those being offered. The three-bedroom house had been on the market since October, with no takers at the asking price of $159,000. The starting bid when it goes on auction Monday will be $9,000. That sounds like quite a deal, but it’s not something you want to leap into without doing your homework.”

”’It’s a good floor plan, and the location is good,’ Falk said. ‘The question is, if you have to put $45,000 or $50,000 into the house, how much do you have to put up for a bid?’”

“Greg Fisher of Overland Park was another potential bidder for 5933 Rockhill. He was interested in flipping the property, buying it low, fixing it up and selling it for a good profit. He’s renovated and sold about a dozen houses over the past 10 years. ‘An auction method is a little new to me, but I expect to bid,’ he said. ‘I have four houses I’m interested in.’”

“There will be at least five lenders on hand to do deals, said Rick Weinberg, a Real Estate Disposition Corp. spokesman. And be sure to bring your W-2 and tax return to prove you can afford the new house you just bid on. ‘People need to prove they have the money to pay the mortgage,’ Weinberg said. ‘The last thing we want to do is put us back in a situation that got us foreclosed in the first place.’”

Reuters on Illinois. “Less than a year ago, few people in this affluent Chicago suburb expected the subprime U.S. housing crisis would hit close to home. ‘We thought Hinsdale was virtually immune and we wouldn’t see any foreclosures, but we have,’ said Dave Hanna, president of the Chicago Association of Realtors. ‘Nowhere is immune.’”

“Hinsdale has been popular among wealthy doctors, lawyers and executives. It has also seen a 37 percent jump in foreclosure filings this year, according to RealtyTrac, and local data shows the average home sale price has fallen to $1.07 million from $1.15 million in September 2007.”

“The consequences of years of devil-may-care mortgage lending during the U.S. housing boom were first felt among America’s poorer home owners. But if that is where it started, it did not stop there. ‘People think this is just a lower-income problem,’ said Mabel Guzmann, a realtor in Chicago. ‘It’s not.’”

“‘According to First American CoreLogic, in August 2008, 5 percent of U.S. jumbo prime mortgages — those over $417,000 — were behind payments 60 days or more. That was higher than the 3 percent of normal prime mortgage loans 60 days or more behind, but well below the 29.5 percent delinquencies seen for subprime loans, or the 15.4 percent rate for Alt A mortgages, which are a step above subprime.”

“But that 5 percent rate for jumbo delinquencies was more than three times the 1.4 percent rate in August 2007. ‘Jumbo prime mortgages have seen the biggest increase in delinquencies of any category over the past year,’ said Sam Khater, chief economist of First American CoreLogic.”

“Hanna said he has seen an improvement in how Illinois banks handle short sales, as he feels the impact of the crisis has sunk in for more bankers. ‘A few months ago, these bankers maybe saw the secretary down the hall lose her home, but they couldn’t relate to that,’ he said. ‘Now, it’s maybe the guy in the office next door. It has just become a lot more personal.’”

The Chicago Tribune from Illinois. “The home-building company who put Rolling Meadows on the map called it quits last week, giving up an attempt to emerge from bankruptcy. Kimball Hill Homes’ demise isn’t the tale of a home builder undone by simple greed or short-sightedness. It’s the story of a company that saw itself as offering people a version of the American dream and tried to buffer itself against the real estate industry’s inevitable cycles, but got swamped anyway.”

“Closer to home, Lakewood Homes President Buz Hoffman, whose father built Hoffman Estates, recently returned three projects in Newark, Plainfield and Burlington to lenders rather than face foreclosures. In Hampshire, lenders have initiated foreclosure proceedings against part of a development by Pasquinelli Homes, another Chicago-area family-owned builder started in 1956 by two brothers.”

“And Warrenville-based Neumann Homes, which got its start in the mid-1980s, sought bankruptcy protection a year ago and is in the process of liquidating.”

“It wasn’t until the firm had two decades under its belt that Hill looked beyond metropolitan Chicago, entering the Houston market in 1989. More expansion followed, and at one time the company was in 17 markets, nine states and five regions. By 2006, when Kimball Hill had more than 44,000 homes on its resume.”

“‘David had more energy than any builder I ever met,’ said Hoffman. ‘He had wonderful ambitions. He wanted to be very large, and there’s a finite number of homes you can do in Chicago. He diversified beautifully. Had this thing only been a little blip, David and others would have been fine.’”

“Until last week, the company thought it had a chance, since an investor had emerged and signed a letter of intent to acquire the company. On Monday, that unnamed investor backed out of the deal, deciding that the housing markets, particularly in Texas, were a long way from recovery. As a result, Kimball Hill will liquidate, and the name will disappear from the local landscape after almost 40 years.”

“‘We were trying to prepare for that rainy day by deleveraging and increasing the amount of equity,’ said Kimball Hill CEO Ken Love. ‘We had a very formal program in place and we were making very good progress. But this downturn more than overtook us.’”

The Press & Guide from Michigan. “Several up-and-coming companies have expressed interest in setting up shop in Dearborn Heights, but city officials say the state’s struggling economy could prevent them from doing so. ‘The fact is we’re experiencing a significant credit crunch right now,’ said Dearborn Heights Mayor Dan Paletko. ‘Banks aren’t writing loans, which makes if very difficult for businesses to receive the financing they need.’”

“City officials say they’re becoming equally frustrated with plans to redevelop the old fire station property located at the corner of George and Drexel. Two years ago, the Dearborn Heights City Council decided between two main proposals for the land: one from Mohamed Hakim, who wanted to build condos, and Moussa Allouch, who wanted to build single-family homes. The issue was put to a vote and the council accepted Hakim’s bid.”

“But in an interview with the Press & Guide earlier this year, Hakim said he’s decided against condos in favor of building single-family homes. But he is not sure when it will happen, citing the state of Michigan’s housing market. ‘The market isn’t supporting the construction of new homes right now,’ Paletko said. ‘It’s very frustrating.’”

Minnesota Public Radio. “More than 20,000 in Minnesota have gone through foreclosure this year. When they go empty, they can attract thieves and vandals, but they also invite people who are simply looking for shelter. Problem is, some of those vacant houses are deemed unsafe to live in.”

“One night a week, St. Paul city inspectors make surprise visits at problem buildings, looking for people who may be living there illegally. With the current foreclosure crisis, program manager Steve Magner says it’s pretty easy for squatters to spot the abandoned homes. ‘They see when someone moves out, or the papers are not being picked up, or the grass is not being cut, or the snow is not shoveled,’ he says. ‘A place might be going into foreclosure, but utilities are still on, so they will just go in there and set up camp.’”

“Many of the residents visited on the nighttime checks are renters. Magner says he’s run into people who have unwittingly paid rent to swindlers who don’t even own the vacant buildings. But officials say at least half of the people who are caught living in vacant buildings are the rightful owners of those homes. In many cases, they’re in a bind because can’t afford to do the rehab while paying rent to live somewhere else.”

The Star Tribune from Minnesota. “The Washington County tax hearing had yet to begin, but Jesse Ventura, former governor and a Dellwood homeowner, had a few things to say to a couple of county board members Thursday night. As the officials stood before him, smiling and listening, the seated Ventura made reference to the value of his property, which still showed a rise this year for the purpose of determining 2009 taxes, and the former governor found the valuation a little hard to believe.”

“‘Am I living in a twilight zone?’ he asked.”

“What many people do not realize, however, is that the market values used to determine tax bills were set last January and sent to property owners in separate notices last March. This year, however, as the economy has worsened, more people have been left to question the accuracy of the values, as presented on November’s tax notices.”

“‘Are you kidding me?’ is the question that St. Paul City Council President Kathy Lantry said she’s heard most often from constituents this year. ‘In this market, my value is going up?’”

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