The Rules Have Changed Dramatically
A report from the Arizona Republic. “The Valley housing market broke records in September for the sharpest year-over-year drop in same-home sale prices and most consecutive months of decline, according to Arizona State University. The current decline became the longest on record in August, surpassing the previous record of 17 months set in 1990 and 1991. ‘The early 1990s saw a recession and fallout from the excesses of the 1980s in the real estate market,’ ASU real estate Professor Karl Guntermann said in a press release. ‘The current downturn has now reached 19 months, and the magnitude of the declines far exceeds those from the earlier period in all regions and cities of the Valley.’”
The Arizona Daily Star. “Nearly a third of all resale home closings in November were foreclosures, driving down Pima County’s median home prices, local housing analyst John Strobeck said in his monthly report. Foreclosures are ‘just so ridiculously priced underneath everything else, that’s just what people are going for,’ he said.”
“With foreclosures going for so much less, Strobeck said new-home builders are being forced to adjust their prices to stay competitive. ‘It’s a great time to buy a house,’ Strobeck said. ‘Look at the prices. We are poised to drop the median price of a new construction home below $200,000.’”
The Yuma Sun from Arizona. “Yuma County’s jobless rate for November reached a seasonally adjusted rate of 19.8 percent, according to the report. That compares to 19.2 percent in October and 13.4 percent in November of 2007. Between November 2007 and this November, Yuma County has lost 2,900 jobs. The year’s biggest losses occurred in manufacturing, construction and financial services - all related to the downturn in the real estate market.”
“‘Title companies have had layoffs,’ said Julie Engel, CEO of Greater Yuma Economic Development Corp. ‘I’ve been told some banks are reducing staff by as much as 50 percent. It’s quite devastating.’”
“Statewide, the Department of Commerce’s newest figures show Arizona shed 83,100 jobs between November 2007 and November 2008. That translates to a 3.1 percent decline. The last time there was that big a one-year drop was in June of 1975.”
Sunbelt Digital Media on Nevada. “The Reno-Sparks Association of Realtors reported Wednesday that home sales climbed more than a quarter but median prices dropped by nearly a quarter in November. In Reno, the condo-townhome price was $82,500, down 45 percent from a year earlier; in Sparks, it was $98,500, down 42 percent compared with November, 2007.”
“‘Although existing home sales are up, the existing home sales market has a deep hole to climb out of,’ said Wayne Capurro, president of the reporting real estate group.”
The Review Journal from Nevada. “Construction has been suspended on the ManhattanWest mixed-use condo development in southwestern Las Vegas, the developer said Tuesday. Funding for the $350 million project is no longer available and it’s uncertain when new financing will be secured, Gemstone Development CEO Alex Edelstein said.”
“ManhattanWest plans call for 700 condo units in 12 buildings, including a nine-story tower that has already been topped off. ‘It started out as just a real estate problem and now it’s a global problem. Real estate is hurt because the larger economy is busted,’ he said. ‘If you’d told me a year ago Las Vegas would have severe layoffs in the casinos and a severe drop in tourism and negative population growth, I would have laughed.’”
“The unemployment rate hit 8 percent in November, the highest level since February 1984, the Nevada Department of Employment, Training and Rehabilitation reported Friday. Doug Geinzer of Recruiting Nevada employment service said people are still seeking work in Las Vegas. In the third quarter, 70 percent of job seekers visiting his Web site were from Nevada, California, Texas and Arizona.”
“‘Job creation obviously is the slowest it’s been in a long time,’ Geinzer said. ‘We’re seeing folks in the time-share industry going on hiring freezes. You know it’s slow. It’s kind of crazy right now.’”
“Housing obviously played a key part in the most serious economic setback of the post-World War II era, economist David Seiders of the National Association of Home Builders said. It started in December 2007 and helped put the entire economy in the red zone, he said. The Federal Reserve is targeting its rate down to zero, which is ‘kind of scary in some ways,’ Seiders said.”
“‘Some people think this can bring the housing market back and I think it’s highly unlikely the Fed can do that,’ he said. ‘That leaves it with Congress and the new administration.’”
“You know the financial outlook is glum when the mortgage brokers who arrange loans have quit paying their own debts. That’s the case for one Las Vegas broker, an investor who’s given up making good on her rental property’s mortgage after a year of fruitless attempts to renegotiate the loan with her bank.”
“The local mortgage broker said she owes more than $100,000 beyond her home’s worth. She’s had trouble keeping renters who could cover the $2,400 monthly payment. When she first called her bank in February to discuss new loan terms, the bank told her she had too many assets to qualify for renegotiation. She called back in October and learned that she was by then too underwater for a modification. She’s paid $7,500 out of pocket in 2008 to stay current in her mortgage, but with her brokerage business slow, she can no longer afford the financial hit. She’s stopped paying the loan altogether.”
“‘In this economy, I can’t keep paying for an empty house that is now more than $100,000 upside down,’ she said.”
“Diane Shackle found it gut-wrenching to walk away from a mortgage she took out in times that were better for both her and the U.S. economy. But the reality was undeniable: While she was keeping up with the monthly payments, she said she could no longer afford to buy food for herself or even kitty litter for her two cats.”
“So the 44-year-old cocktail waitress walked away from her two-bedroom condo in Southern California last July, turning her back on a debt of nearly $200,000. ‘It ripped me up to do it but I was tired of worrying and I had no food in the house,’ said Shackle. ‘I decided, you know what, I’m not living like this.’”
The Las Vegas Business Press from Nevada. “Foreclosures now account for 60 percent to 70 percent of monthly home sales in Las Vegas and their median price is $166,000, which is below replacement cost in most cases, housing analyst Larry Murphy of Las Vegas-based SalesTraq said.”
“We won’t know we’ve reached bottom until we’re past it and prices start to rise, broker Tim Kelly Kiernan said. With more than 200 notices of defaults going out every day, foreclosures will continue to plague the market. Kiernan suggests there are some 10,000 real estate-owned, or bank-owned, properties waiting to hit the market in Las Vegas. He’s advising clients not to sell unless they absolutely must and they’re willing to bring money to the table upon closing.”
“Buyers have to make strong offers on REOs and short sales. They won’t be able to ‘low-ball’ the banks, Kiernan said.”
“‘In general, this is a unique real estate market here in Las Vegas, to say the least,’ the REO specialist said. ‘The rules have changed dramatically, and it depends on which side of the fence you’re on. We may never see this type of market again. In most areas, prices are back to 2002 and 2003.’”
The Associated Press. “Roland Walker, the owner of southern Utah’s largest incomplete subdivision, is being forced to sell the trees to keep his project afloat. Nearly four square miles in the redrock desert, Elim Valley has been laid out with roads, utilities, sidewalks and street lights. Walker has approval for ‘every square inch’ of a dense New Urbanism-style community of as many as 10,423 housing units.”
“But there isn’t a single house to be found at Elim Valley, nor a sign any are being built.”
“Walker also owes at least $10 million to a group of short-term real-estate investors who aren’t interested in a tree swap. The investors are suing to recover money spent on land and water rights. Walker’s lawyers have temporarily blocked a foreclosure in state court. ‘We just want the money back,’ said Greg Walker, director of risk management for Cypress Capital XI LLC of South Jordan, Utah, who is not related to the developer.”
“‘It’s simply: We loan some money, take collateral. They pay it back, we return the collateral. We know the economy sucks. But we have a fiduciary responsibility to our investors,’ he said.”
The Wall Street Journal. “At the height of the property bubble, California’s giant pension fund, Calpers, made a fateful decision: It aggressively poured money into real estate. As a result, today it’s one of the biggest owners of undeveloped residential land in America.”
“In recent years Calpers invested in: Three large parcels near Phoenix, one of the nation’s hardest-hit property markets. Last month, Calpers effectively walked away from one of the three, after having invested $140 million. A massive block of land with room for about 8,000 units near the small town of Mountain House, Calif., the nation’s most “underwater” housing market by one measure. (Nearly 90 percent of homeowners there owe more on their mortgages than their homes are worth, according to mortgage-research firm FirstAmerican Corelogic.)”
“Until last year, the Calpers strategy worked. Through its housing partners, the fund pursued big, complex deals with large homebuilders. Returns on housing investments were an impressive 16 percent average annually from 2004 through 2006.”
“As the U.S. property market crested, the deals got bigger. The biggest was LandSource, the $2.5 billion venture now in bankruptcy-court protection. In LandSource, Calpers teamed up with Lennar Corp., the giant Miami-based homebuilder. Lennar was known in the industry for its sophisticated use of land deals. The LandSource deal took shape in 2006, when Victor MacFarlane, one of Calpers’ long-time real-estate investors, asked Lennar if it would be interested in selling a big stake in its 15,000-acre Newhall Ranch, north of Los Angeles.”
“It turned out to be a bad moment to buy land. In the summer of 2007, just a few months after LandSource closed, the U.S. housing market entered its historic free-fall. LandSource filed for bankruptcy protection earlier this year.”
“Calpers stresses that it’s a long-term investor and can earn back the declines in the future, just as it erased declines suffered in the dot-com bust a few years ago. ‘No one in the marketplace knew how swiftly the housing market would fall — not the Federal Reserve, not the Treasury,’ said Ted Eliopoulos, head of Calpers’s real-estate portfolio.”
The Salt Lake Tribune from Utah. “Delinquencies in car dealer-arranged automobile loans reached a historic high of 3.13 percent during the fourth quarter of 2007, according to the American Bankers Association. That was only a bit less than the 4.3 percent of home loans that were delinquent in Utah in the same period. ‘Look at what is happening,’ said Carol Kaplan, spokeswoman for the bankers’ association. ‘We’re seeing rising unemployment. You have people losing their homes and businesses. It is no wonder that repossessions are up.’”
“Repo man Rich Whittaker in Salt Lake City has been in the business for 25 years.Whittaker said one thing is different in this recession from downturns of the past. These days he is repossessing many more luxury and high-end automobiles, such as Porches and Mercedes Benzes.”
“He finds it interesting and telling about the depth and breadth of this economic downturn that people who at one time must have had pretty good credit now find themselves unable to keep up the payments on those expensive cars.”
“‘What is really taking up our time, right now, is that we’ve been repossessing a lot construction equipment and big motor homes — stuff that takes a long time [and a lot of effort] to haul away,’ Whittaker said.”
“Some of the larger-scale items that West Coast has repossessed have included a $300,000 granite saw used to cut countertops and an excavator used at one time to dig basements for homebuilders, who also have fallen on tough times.”
“‘What we’re hearing is that a lot more of the repossessed vehicles we are seeing were voluntarily surrendered,’ said Rob Brasher of Brasher’s Salt Lake Auto Auction. ‘The owners just called up their lenders and told them to come and get their cars because they could no longer afford the payments.’”
